Owing to the economic crunch due to the COVID-19 pandemic, as of June 2020, about 5 million US homeowners have applied for forbearance. There is some apprehension among borrowers about foreclosure and eviction in this situation. There is also concern about the lack of information about mortgage forbearance, its complexities, and options available. Read along as we discuss the impact of COVID-19 on Mortgage Forbearance and relief options.
Managing your mortgage payments and balancing finances has been a stressful business for many families in this pandemic. Mortgage forbearance is an option for homeowners facing temporary economic hardships. It helps to temporarily reduce or suspend mortgage payments to a mortgage company or lender. At the end of the forbearance period, the borrower has to repay the remaining amount to the lender. Looking at the need for relief measures, the US Congress passed the Coronavirus Aid, Relief, and Economic Security Act, 2020, or popularly known as the “CARES Act”, in March 2020. This Act has given homeowners a six-month forbearance on federally backed mortgages, declared no foreclosures or evictions till 2021, and protection of credit score. In July 2020, over 8% of mortgages were under government or private-sector forbearance program.This number decreased to 6.87% by end of September 2020.Figure 1 - Mortgage Forbearance percentage in COVID-19
Image source - https://newslink.mba.org/mba-newslinks/2020/october/mba-newslink-monday-oct-5-2020/mba-chart-of-the-week-loans-in-forbearance-as-share-of-servicing-portfolio-volume/
Federal vs Private Mortgages
To be eligible for help under the CARES Act, the mortgage must be federally backed. According to the US Govt’s Consumer Financial Protection Bureau (CFPB), nearly half of all U.S. mortgages are owned or backed by the two federal lenders Fannie Mae and Freddie Mac.
Private-sector mortgages make up 30% of the borrowings. For these mortgages, there is no relief under the CARES Act, but there are other options available. These options are, however, not standard, that is different banks do things differently. In this case, information sharing becomes even more critical for borrowers to know where they stand.
Generally, customers would need to contact the mortgage servicer and be required to submit relevant paperwork or information to know about forbearance options. Another source is looking up tools online for information like the Mortgage Electronic Registration Systems (MERS) to find the lender information. With the advent of technology and innovation in financial services, platforms like inflooens Mortgage CRM are available. Through these platforms, this information can be made readily available to mortgage loan officers and customers.
What happens at the end of the forbearance period?
At the end of the forbearance period, borrowers will have to repay the missed payments or deficiencies related to reduced payments. It is usually a lump sum amount that has to be paid all at once. But there are other options also available to the homeowners such as:
- Short-term Repayment plan This allows the borrower to pay the forbearance amount over six months along with the regular mortgage payment. This can be aided by the lender by discussing a repayment plan that is best suited for the borrower.
- Loan modification In case of continued financial hardships, borrowers can apply for a mortgage loan modification which can help in reducing the interest rates and making payments more manageable.
- Deferment Plan With this option, homeowners can delay payment of the amount due to the end of the loan term. Depending on the lender’s policies, this amount may be paid as a lump sum upon maturity, payoff, or finance of the mortgage.
Some Good News
The pandemic has taken a toll on our lives. The economic impact of COVID-19 has left us wary of applying or continuing mortgage loans for now. The good news is that forbearance rates are on the decline and have dropped as per the last MBA survey in September-end 2020. This is also indicated in the decreasing volume of calls from borrowers to mortgage servicers, which has fallen from 8.3% to 6.8% of the total servicing portfolio. As per recent surveys, mortgage applications by homeowners are steadily rising despite supply-side constraints and limited buying capacities for homeowners. These figures indicate a positive trend in the mortgage market, and we can hope that things look up soon.
Figure 2 - Increasing Mortgage Applications Image source - https://www.economy.com/economicview/indicator/usa_mbamort/0B0A1FF1-087A-4581-8D13-855817388BE9/United-States-MBA-Mortgage-Applications-Survey
A sudden rise in mortgage forbearance is a shock to the system where the liquidity risk lies with issuers of mortgages. This risk is greater for non-bank mortgage servicers that service loans guaranteed by government-sponsored entities, as they have limited access to working capital, while they still need to advance scheduled payments to mortgage-backed securities (MBS) investors. This has been addressed to some degree by guidance issued by The Federal Housing Finance Agency from time to time.
With changing scenarios and policies there is a need for streamlining information sharing and consolidation of lending processes. This can only be done through smart and intelligent CRM platforms like inflooens that allow data to be sent across all markets in one go. inflooens is a reliable and efficient platform that leverages the rich features of Salesforce for the Mortgage industry to innovate the lending process.
inflooens is the world’s first “Loan Team Optimization Platform” that extends human abilities to cause disruption in mortgage industry. This next-generation, cloud-based, integrated mortgage platform aims to transform the entire Mortgage Process and enhance the customer experience. Learn more about the platform on www.inflooens.com