Miriam Moore is the President of Default Services at ServiceLink, a provider of transaction services to the mortgage and finance industries.
The U.S. economy, which was ravaged by the fallout from an unprecedented pandemic, is taking steps to course correct. This, after millions of homeowners already teetering on the brink of financial distress were pushed over the edge when businesses and industries plummeted under the weight of Covid-19. Many people lost jobs, but fortunately not their homes.
The housing industry acted quickly and implemented a moratorium to prevent a massive onslaught of foreclosures across the country. No lender or agency wanted their name associated with booting people from their homes during a worldwide crisis. Today, foreclosures are currently at an all-time low. Stats show foreclosures are down 61% from a year ago, and 78% from 2019.
In lieu of foreclosure, many homeowners who were negatively impacted by Covid opted for loan forbearance under the CARES Act, which allowed for a pause or reduction in mortgage payments for a period of time. This provided some much-needed breathing room for millions of Americans who were struggling to make ends meet. In May 2020, some four million mortgages were in forbearance. Now, as the economy is slowly regaining strength, the Mortgage Bankers Association estimates that 1.6 million homeowners are currently in some state of forbearance.
The length of forbearance is generally 12 months, but three-month extensions are available to some borrowers upon request. For many homeowners who entered forbearance in the spring or summer of last year, those terms may be nearing their expiration date. There will be a subset of this population who are unable to resume full mortgage payments, but there are options available to provide additional assistance.
Throughout my 20+ years in the default business, I’ve found that most borrowers don’t know enough about the resources available to them and they are often too afraid to ask for additional help. In these situations, information is key, so I’ve outlined a few steps to get started.
1. Take action.
Despite the perception, servicers really do want to help people stay in their homes. That’s why my biggest piece of advice is for homeowners to call their servicer and ask about their options. It might seem intimidating, but this is an important step.
For people who are about to exit the forbearance process, servicers will call about a month in advance to discuss options such as an extension, if it’s available. But I’d suggest making the call and not waiting for them to reach out. Borrowers can find their servicer information on their mortgage payment statements, or by making a quick call to their servicer (the company they make their payments to).
2. Determine the best path forward.
The end of forbearance means it’s time to decide how to move forward. The payments that were paused or reduced during the term have to be repaid in some way. Whether through a reinstatement, extension, deferral, repayment plan or loan modification, there are several considerations on how to exit forbearance.
• Reinstatement: This option is for homeowners who are financially capable of paying back the full sum of payments that were missed during the forbearance period. This is the quickest way to bring a loan current.
• Extension: This option allows for the outstanding payments to be added to the end of the loan term, extending the end date of the loan by the payments forborne.
• Deferral: This gives borrowers the opportunity to postpone part or all of the outstanding balance. In some cases, that sum will be due when the home is sold or refinanced (a balloon payment).
• Repayment: The balance of the missed payments will be added to regular monthly payments and spread out over a period of time until the loan is current. Usually this will result in higher payments unless the interest rate of the loan is reduced as well to keep the resulting payment level.
• Loan modification: The loan terms, interest rate or length will be modified to include past due payments and to ultimately make the loan more affordable for the borrower.
3. Seek professional help.
Ask the experts. Housing counselors are a great tool for those who want to have honest conversations about their financial status and to determine the best course of action. Borrowers who are in any stage of the default process can visit the HUD website for a list of housing counseling agencies across the U.S. These services are generally free or low-cost, depending on the kind of counseling sought.
4. Stay vigilant.
Keep a watchful eye on credit scores. One of the other protections of the CARES Act prevents lenders from reporting missed mortgage payments for borrowers in forbearance, so it’s best to keep an eye on credit reports to make sure no errors were made.
The bottom line is, for most of us, our homes are our most coveted asset. Covid’s impact on the economy accelerated financial distress for millions, putting that very asset in jeopardy. As eviction moratoriums and forbearance periods are coming to a close, borrowers must arm themselves with knowledge. Help and resources are available, but homeowners must take an active role in advocating for themselves and their financial future.