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Mortgage Relief Programs Explained

August 20, 2021

7 MINUTE READ

The COVID-19 pandemic has hit ordinary, hard-working Americans hard. With mortgage payments being the average household’s biggest monthly expense, many Americans have found their homes at risk of default.
To cope with the pandemic’s economic fallout, the government passed several laws last year to provide government mortgage relief to millions of homeowners. Here’s what you need to know about what a mortgage relief program is and whether you qualify for one.

What is a Mortgage Relief Program?

A government mortgage relief program has the power to suspend borrower payments for a specific period. Historically, these programs have been utilized during times of economic difficulty for the country to prevent mass foreclosures and the housing market collapse.

In the past, when a Federal mortgage relief program has come into force, it would create provisions to prevent foreclosure and eviction actions resulting from foreclosure.

For example, the HARP program came into being after the 2008 financial crisis and lasted until 2019. It helped countless homeowners keep their homes after the economic turmoil of the recession.

If you’re one of the Americans struggling to meet your monthly mortgage payments, you could qualify for the latest COVID-19 homeowner relief program.

COVID-19 Mortgage Relief Program

The main Congress mortgage relief program, resulting from the COVID-19 pandemic, was enacted as part of the Coronavirus, Aid, Relief, and Economic Security Act (CARES Act).

The CARES Act ordered lenders to suspend borrower payments for a maximum of 360 days if the borrower could prove financial hardship. Additionally, the Act suspended foreclosure and foreclosure-related eviction until December 31st, 2020, which was then extended (under the Consolidated Appropriations Act (CAA) until January 31st, 2021, and subsequently June 30th, 2021.

Finally, the CARES Act suspended negative credit reporting for borrowers who qualified for this program. Take note, the provisions of this Act only apply to government-backed mortgages.

What Mortgages are Eligible?

Not all mortgage holders can benefit from this Congress mortgage relief effort. Primarily, the mortgages eligible must be backed by the Federal government. Freddie Mac and Fannie Mae are the two main government-sponsored enterprises (GSEs) that buy and sell mortgages. If you have a mortgage from either of these two GSEs, you may qualify for home loan payment relief. Other Federal mortgages, depending on your circumstances, may also qualify. These are VA, FHA, and USDA mortgages.
If you don’t know what type of mortgage you currently hold, call your lender. They will be able to discuss the options open to you.

Non-Government Backed Loans

Do you have a non-government-backed loan? Unfortunately, the government mortgage relief program doesn’t apply to private mortgages.
These types of loans are called portfolio loans, and they aren’t resold to government agencies or GSEs. If you’re a non-citizen, self-employed, or have previously experienced foreclosure, you likely have one of these mortgages. Although not covered under the COVID-19 relief programs, they may have separate assistance programs. Again, you’ll need to contact your lender to learn about your options.

Everything You Need to Know About Mortgage Forbearance

Traditionally, forbearance has been the primary method of temporarily reducing mortgage payments if a homeowner is experiencing financial difficulties. The current laws passed by Congress do have provisions to support eligible homeowners who require it.

What is Forbearance?

Forbearance is a simple concept to understand. It’s an agreement between the borrower and the lender to suspend or lower monthly mortgage repayments for a limited period of time. It’s done in lieu of going into foreclosure and to help homeowners keep their homes.
Repayments can be made as a lump sum at the end of the forbearance period, added to the end of the mortgage, or paid monthly for the duration of the mortgage. These terms largely depend on the agreement worked out between the borrower and lender.

CARES Act Protections

The CARES Act enables residential borrowers to receive forbearance on all government-backed mortgages for up to 180 days. They also have the option of extending their relief for an additional 180 days. Landlords with multi-family property mortgages may request a 30-day forbearance, which can be extended for a further 30-day period.
Although the CARES Act provides forbearance to homeowners, different lenders will offer different terms. Make sure your lender allows you to add the missing payments to the end of the mortgage term rather than paying a lump sum payment at the end of the forbearance period.
Other protections provided by the CARES Act include:

  • The right to halt forbearance at any time.
  • No non-payment penalties.
  • No late fees.
  • No negative reporting to credit bureaus.
  • No foreclosure.
  • No evictions.

Approximately 8.3 million Americans have applied thus far, which makes up 7% of all mortgages. This number is expected to rise exponentially as COVID-19 restrictions continue across the country during the first half of 2021.

How to Request Mortgage Relief

If you’re wondering how to apply for mortgage interest relief you can rest easy knowing the government relief program also prevents the levying of additional interest charges.

Assuming you do have a Federally backed mortgage, you need to contact the company to which you make your payments. You don’t need to submit lots of documents, only a written affirmation of financial hardship on a standard forbearance request form.

The only exception is landlords with mortgages on multi-family units who must be up-to-date with all mortgage payments as of February 1st, 2020, to qualify.

There’s no complexity involved. Practically anyone can utilize the forbearance program if they’re in financial hardship and their mortgage is backed by the government.

Different lenders will have different options, however. Some lenders will demand a balloon payment at the end of the forbearance period. Others will be willing to add on the missed payments to the end of your overall mortgage term. Alternatively, you may be able to negotiate increased monthly payments when you come out of the forbearance program.

Take note; any forbearance extension is not automatic. You need to make a specific request to your lender. Again, you just need to claim to have financial hardship. No additional documentation is required.

Pros and Cons of Taking the Forbearance

Forbearance is not for everybody. There are pros and cons of taking forbearance. Unless you have absolutely no other choices available, you need to weigh the advantages and disadvantages before applying.
Let’s take a look at the pros and cons of taking a forbearance.

Pros

  • Prevents your home from going into foreclosure.
  • Gives you breathing space to deal with short-term hardship.
  • Unlike pre-pandemic forbearance, you won’t receive a hit to your credit score.

Cons

  • You may have to make a large balloon payment later.
  • It could take longer to pay off your mortgage.
  • Higher monthly mortgage repayments could become difficult to handle in the future.

For most people who qualify, this government relief initiative is a fantastic option. But if you’re a homeowner who either doesn’t qualify or who won’t benefit, there are other avenues to consider.
For example, mortgage refinancing could be a better option. With rock bottom interest rates, refinancing could save you thousands of dollars in the long term and get you over the worst of short-term hardship.
You may want to speak to a mortgage expert about whether forbearance is the right move for your personal finances.

How Long Does Forbearance Last?

Under the mortgage relief program, a forbearance lasts for 180 days, which is six months. You can also request an extension of another 180 days. The maximum amount of forbearance allowed is 360 days.

Your Mortgage is in Forbearance: What’s Next?

So, you’ve successfully applied for forbearance under the government mortgage relief program?
While you’re in the forbearance program, you should continue to monitor and check your loan. Furthermore, be ready to act as the 180-day deadline nears.

  • Stop or alter any mortgage auto-payments with your bank. You don’t want to get hit by unnecessary fees and charges.
  • Confirm that property taxes and insurance will continue to be paid.
  • Check your monthly mortgage statements for the forbearance period to ensure there are no errors.
  • Get a copy of your credit report. Your lenders must mark your account as ‘current’ on your credit report. Ensuring this is done correctly can prevent a negative mark on your credit history.
  • Be prepared at the end of the forbearance period to either make mortgage payments again or to request a further 180-day extension. The extension period is not applied automatically.

Conclusion

Qualifying for the mortgage relief program is automatic if you experience financial hardship and hold a government-backed mortgage. If you don’t qualify, there are alternatives. Reali can help you search for some alternative options, including mortgage refinancing.

We could potentially save you thousands of dollars on your home loan and help you overcome the economic difficulties of the pandemic.
Talk to us today for expert information and advice on your mortgage.