Financial Options for Renters and Homeowners Impacted by COVID-19
After the 2008 housing crash, our nation hoped to never see another financial crisis like it again, but we are currently facing unprecedented times, and with them the emergence of a new, abnormal, normal. Due to the COVID-19 pandemic, children are out of school, businesses are closed and we are strongly advised to protect ourselves by remaining isolated in our homes.
Every emergency requires a nuanced response, and the impacts of this pandemic, both short-term and long-term, are difficult to anticipate with certainty at this time. However, history demonstrates time and again that those that are most vulnerable even in times of economic and social stability generally suffer the greatest in times of turmoil. For those of us who are struggling to make our mortgage and rental payments, there are resources and up-to-date information available to help.
Rather than hiding from a lender, it’s wise to reach out for help. People who are experiencing financial difficulty should seek a HUD approved housing counseling agency or contact their mortgage servicer immediately to find out what options might be available. Here are a few of the supports that are currently available for borrowers affected by COVID-19:
Forbearance on Federal Housing Administration mortgage payments
Homeowners who are facing temporary hardship due to COVID-19 have options to postpone mortgage payments, according to the Federal Housing Finance Agency. In an effort to stave off foreclosures, servicers are offering forbearance options—temporary suspensions or reductions of payment—to those who might be in jeopardy of falling behind on mortgage payments. For borrowers with federally backed Federal Housing Administration (FHA) or Government Sponsored Enterprise (GSE) mortgages, the Coronavirus Aid, Relief, and Economic Security (CARES) Act makes it possible to contact a servicer and request a forbearance with limited to no documentation.
With this option, the lender temporarily reduces or suspends mortgage payments for up to six months while borrowers get back on their feet, with an additional six months if an extension is requested. Interest will still accrue and be added back onto the loan when payments resume. Forbearance is often combined with a reinstatement or a repayment plan to pay off the missed or reduced mortgage payments when a homeowner’s financial situation has stabilized. At the end of the forbearance period, a borrower who is able to repay missed payments may be eligible for a Standalone Partial Claim, which is a no interest, junior loan secured by their property.
Deferment on conventional mortgages through Fannie Mae and Freddie Mac
For those who have GSE mortgages or conventional mortgages—mortgages not backed by the FHA or Department of Veterans Affairs—through Fannie Mae and Freddie Mac, the mortgage companies sponsored by the US Government, there is also the option to have payments deferred. Fannie Mae is rolling out a COVID-19 payment deferment program developed with Freddie Mac to address the financial impact of COVID-19. This program is similar to the general deferment program they had announced earlier in the year to address temporary hardships outside of the COVID-19 pandemic. However, the COVID-19 program includes the stipulation that a mortgage loan must have been current or less than 31 days delinquent as of March 1, 2020, the date of the COVID-19 National Emergency declaration.
Other key elements of the program include:
- Extend Modification. This allows the borrower to extend their mortgage term based on payments missed. For example, if a borrower is delinquent 6 months, they would receive a modification with their term extended for 6 months. The interest rate would remain the same, and no loss mitigation package would be needed, provided the borrower verifies that they can make payments.
- Capitalized Extend Modification. This modification capitalizes delinquency—meaning the unpaid interest is added to the principal balance of the loan. This is typically used for serious delinquencies of 12 months or more. The interest rate would remain the same, and no loss mitigation package is required; however, the borrower must verify they can afford to make regular monthly payments after the delinquency is capitalized.
- Flex Modification. This modification capitalizes the delinquency, extends the term back to 30 years or increases it to 40 years, and lowers payments while keeping the interest rate the same, provided the borrower completes a loss mitigation package if they are less than 90 days delinquent. If they are more than 90 days delinquent, no package is required. According to a Fannie Mae and Freddie Mac representative, an example of when this modification would be used is when the borrower has had a decrease in income.
The City of Cleveland and Cuyahoga County as of July 1, 2020 launched a rental assistance program to eligible residents who have been affected by COVID-19 in these areas. Other cities nationwide have established similar programs, which can be found through the National Low Income Housing Coalition’s database. If you have been affected by COVID-19 and need rental assistance, contact a HUD approved housing counseling agency like Benjamin Rose Institute on Aging’s ESOP to help assist you with the application process. Ohioans in need of assistance can reach ESOP at www.esop-cleveland.org or by telephone at 216-361-0718.