Mortgage Relief | What You Should do if You Can't Pay

Editors Note:

With the unemployment rate on the rise and so much uncertainty surrounding the economy, it’s an unfortunate reality that there are a lot of people struggling to pay their mortgage. In fact, mortgage lenders are battening down the hatches in preparation for millions of potential mortgage defaults.

If you are one of the many Americans who is struggling to make their mortgage payments, you should know that there are a variety of options available to you, and the sooner you act– the better.

Mortgage relief is available for many:

Home loans owned by Fannie Mae, Freddie Mac, and the Federal Home Loan Bank may be eligible for relief. This relief comes in the form of:

• Waived late fees
• Delinquency won't be reported to credit bureaus
• Delayed foreclosure and legal proceedings

It's worth noting that this is not free money. You will need to pay back the amount you've deferred, though those terms will be determined by your lender, or the entity to which you send your monthly mortgage payment.

Fannie Mae

• Homeowners who are adversely impacted by this national emergency may request mortgage assistance by contacting their mortgage servicer
• Foreclosure sales and evictions of borrowers are suspended for 60 days
• Homeowners impacted by this national emergency are eligible for a forbearance plan to reduce or suspend their mortgage payments for up to 12 months
• Credit bureau reporting of past due payments of borrowers in a forbearance plan as a result of hardships attributable to this national emergency is suspended
• Homeowners in a forbearance plan will not incur late fees
• After forbearance, a servicer must work with the borrower on a permanent plan to help maintain or reduce monthly payment amounts as necessary, including a loan modification

Freddie Mac

• Ensuring payment relief by providing forbearance for up to 12 months
• Waiving assessments of penalties or late fees
• Halting all foreclosure sales and evictions of borrowers living in homes owned by the company until at least May 17, 2020
• Suspending reporting to credit bureaus of past due payments of borrowers who are in a forbearance plan as a result of hardships attributable to this national emergency
• Offering loan modification options to provide mortgage payment relief or keep those payments the same after the forbearance period

What if I can’t pay my home loan and it’s through a bank?

Loans owned by Freddie Mac, Fannie Mae, and the FHFA amount to about 50% of all home loans, the rest are owned by public and private banks. We've talked to a number of bankers over the past week, and the majority have stated they are willing to work with borrowers until the virus subsides.

Here are their two options:

1. Forbearance

Most banks offer some sort of mortgage forbearance plan. In a nutshell, this is a plan that lets you defer payments into the future. In most cases, these plans require you to pay the full deferral in one lump sum.

2. Modification

Mortgage modification is the most flexible option, especially in a situation like the Coronavirus. Under a modification plan, a lender will either spread out payments over future periods, or add additional months to the life of the loan.

It should be noted that credit reporting suspensions and other leniencies may not apply to non-agency loans.

How long do I have before I risk losing my home?

The most common thought when you can’t pay your mortgage is probably: “How long do I have until I’m homeless?” The answer is, it depends on your loan type...

How long can you skip mortgage payments?

For starters, every mortgage payment has a 15 day grace period after each monthly due date. After those 15 days, your lender can charge you a late fee. When it comes to missed mortgage payments, lenders will give three months to a year under normal circumstances.

In 2020, given the pandemic, each loan has a different timeline for how it will treat missed home loan payments:

Fannie Mae

Homeowners impacted by the national emergency are eligible to reduce or suspend their mortgage payments for up to 12 months. Borrowers who are enrolled in a forbearance plan will not be charged late fees.

Freddie Mac

Freddie Mac is holding off on foreclosures and evictions until at least May of 2020. Additionally, penalties and late fees will be waived.

Private lenders

Timelines with private lenders vary by contract and lender, and specifics will be spelled out in your loan contract. I've worked with investors who move to foreclose after one missed payment, and others that let a few late or missed payments slide. The thing to remember is that a lender has to protect his or her own interests, and forgiving a late or missed payment too many times can have legal consequences because it's establishing a history of allowing this to occur. As a borrower, you have to assume the lender will foreclose for being even a day late.

What’s the long term impact on my finances?

The short answer is that it will depend on your lender.

For Fannie Mae and Freddie Mac loans, as long as you’re actively enrolled in a forbearance plan your missed payments will not be reported to credit agencies. This is true for a large number of private lenders as well, but the exact provisions will vary by lender.

The bottom line is that as long as you’ve worked out an arrangement with your lender, you shouldn’t worry about penalty fees or a blemish on your credit report.

Forbearance is not forgiveness

The final take away here is that you shouldn’t confuse emergency mortgage relief with a free pass to miss payments.

The details of your forbearance plan will depend on your lender, but it’s important to remember that you will still be responsible for the payments you are delaying.