The Coronavirus Aid, Relief and Economic Security Act or “CARES Act” was signed into law on March 27, 2020. This law creates a mortgage relief system that you should be aware of. Below are some answers to Frequently Asked Questions about how the CARES act affects borrowers, lenders and servicers of mortgages.
Q: What is the “foreclosure moratorium” I heard about?
A: Federally backed mortgage loans (more on those later) are subject to a foreclosure moratorium for 60-days beginning March 18, 2020. If a foreclosure case is pending and has not reached a judgment yet, the foreclosure activity must stop. New foreclosures on federally backed mortgage loans are also suspended for 60-days. This also means that absent further extensions, on May 18, 2020, all foreclosure activity can resume.
On June 17, 2020, Fannie Mae, Freddie Mac, FHA and VA all announced they would extend the foreclosure moratorium until at least August 31, 2020 for pending and new foreclosure proceedings and evictions. The new moratorium does not apply in cases where the servicer has documented that the property is vacant or abandoned.
Q: I have heard in media reports that mortgages can go into something called “forbearance.” Is that true?
A: Yes, but forbearance requests are limited to requests from borrowers experiencing hardship due “directly or indirectly, to the COVID-19 emergency,” and are only required if your loan is a “federally backed loan.”
Keep in mind that a forbearance is not payment forgiveness. A forbearance is a temporary suspension of a borrower’s duty to make full mortgage payments.
Q: Is my loan a federally backed loan?
A: Chances are that if you have a mortgage loan of less than $510,400.00, it is a federally backed loan. About 70% of all residential mortgage loans fall in this category. Federally backed loans guaranteed or owned by Fannie Mae or Freddie Mac, and any FHA, VA, or USDA loan.
But even if your loan is less than $510,400.00, confirming you have a federally backed loan is tricky. To determine whether your loan is federally backed, first check the loan lookup tools on websites for Fannie Mae and Freddie Mac.
If your loan is not listed as a Fannie or Freddie loan, it still might be a federally backed loan. You are going to have to do some more sleuthing. First look at your mortgage document, and see if it has an "FHA" number, or indicates the loan is a USDA loan, or VA loan. You can find more information from on the websites for each federal agency: USDA, FHA/HUD, VA. You may also try calling the department of Housing and Urban Development (HUD) directly at 877-622-8525.
Q: How do I get a forbearance.
A: There is no formal requirement. In fact, the CARES Act states the servicer or lender may not require anything other than your “attestation to a financial hardship caused by the COVID-19 emergency” to obtain a forbearance. This means you should be able to request a forbearance by phone. If you cannot reach your servicer or lender by phone, check your online account portal.
If you need to make a request by mail, keep a signed copy of your request and send the request via some tracking method like priority or certified mail.
Important note: You do not have to be delinquent to obtain a forbearance under the CARES act. However, some servicers and lenders are apparently ignoring this requirement.
Q: How long is the forbearance?
A: You are entitled to request a forbearance of mortgage payments for up to 180 days, and then request and obtain additional forbearance for another 180 days.
Q: How long do I have to request a forbearance?
A: This is unclear. The CARES act states that the forbearance is required to be provided during the “covered period” which is not specifically defined. Most of us reviewing the CARES act interpret the “covered period” to last at least through the end of the COVID-19 emergency.
We anticipate that this will be clarified and extended in future legislation.
Q: What happens during the forbearance period?
A: Under the CARES act, the servicer may not enforce any delinquency, and may not charge fees, penalties or interest beyond the amount that would normally be charged if you were making full payments during the forbearance period. You may also cancel the forbearance early without penalty.
Your credit report cannot show a different status after forbearance. In other words, if you were current before COVID-19, then the credit reporting must show that you are current. Interestingly, the credit reporting requirement applies to all mortgages in the United States, not just federally backed loans. So if your mortgage was reported current prior to the March 18, 2020 declaration, it has to remain reported as current until the end of the COVID-19 “covered period.”
Q: What happens after the forbearance period ends?
A: The CARES act does not state anything about how the payments are to be made. However, recent updates issued by Fannie Mae, Freddie Mac, VA, FHA and USDA generally state that servicers are required to contact borrowers at least thirty days before the forbearance ends to evaluate the borrowers for a loan modification. As of July 1, 2020, Fannie Mae, Freddie Mac, and FHA have implemented a "payment deferral" program that allows people that were current on the mortgage prior to the forbearance to resume making the pre-forbearance payment.
Similarly, the VA and USDA are requiring loss mitigation reviews at or before the end of forbearance. VA guidance states that forbearance recipients are not required to make lump sum payments after forbearance. FHA has issued similar guidance regarding a lump sum payment, but loan modification guidance is generally limited to
It is not clear whether payments would pick up where they left off or whether the borrower will owe back payments at the end of forbearance. The CARES Act contemplates treating the loan as if it was paid during the forbearance period. Generally, borrowers should be given the option to make up the missed payments in a lump sum, or through a repayment plan or loan modification.
Loan modification requirements remain in place. If you obtain a forbearance and cannot afford repayment, you should apply for a loan modification. The loan modifications are not from the CARES act but are based on existing and pending federal regulations.
Ideally by working with an attorney, you can define the repayment terms when requesting the forbearance. But this may be difficult for some. As a result, some regulatory measures are being formulated by the federal agencies mentioned above. For example, Fannie Mae is directing servicers to contact borrowers at least 30-days prior to the end of the forbearance to evaluate borrowers for loan modifications.
Tai J. Vokins is an attorney licensed to practice in state and federal courts in Kansas. Mr. Vokins has been recognized as a top rated consumer law attorney since 2012 and has prior experience as an Assistant Attorney General in the Consumer Protection Division of the Office of the Kansas Attorney General. If you have questions about consumer rights, call Tai at 785-842-6311.
The information and materials on this blog are provided for general informational purposes only and are not intended to be legal advice. The law changes frequently and varies from jurisdiction to jurisdiction. Being general in nature, the information and materials provided may not apply to any specific factual and/or legal set of circumstances. No attorney-client relationship is formed nor should any such relationship be implied. Nothing on this blog is intended to substitute for the advice of an attorney, especially an attorney licensed in your jurisdiction. If you require legal advice, please consult with a competent attorney licensed to practice in your jurisdiction.