Joseph R. Biden, Jr. was inaugurated as the 46th President of the United States of America on January 20, 2021. With barely enough time to celebrate this major achievement, he rushed to work and signed off on several executive orders and actions on his first day in office. One such executive order included extensions on the moratorium for mortgage foreclosures and rental evictions. Here are the details on this latest executive order, particularly helpful if you are a mortgage lender or servicer attempting to collect on the homeowners’ debts.

Extensions on Mortgage Foreclosure Moratoriums and Forbearance

President Biden issued several executive orders dealing with a wide variety of topics, including climate change, student loan debt, COVID-19 relief and regulations, and immigration. Of particular interest to mortgage lenders is the moratorium extension; request for even further extensions in the future; and updates to the newest forbearance guidelines. With regards to the moratorium, the new order mandates that:

While the mortgage, rent, and income protections provided for in last spring’s original Coronavirus Aid, Relief, and Economic Security (CARES) Act have long since been exhausted, many states, including Illinois, have continued to offer their own executive orders and legislation to assist residents during this unprecedented time. In addition, many mortgage companies have developed their own programs for homeowners to help them avoid foreclosure, at least for the time being. However, that is not to say if you are looking to eventually collect on the debts owed from these properties that might be in preforeclosure, you should not be prepared to take action. Foreclosure debt collection will be inevitable post-pandemic, despite the latest COVID relief package being signed into law. In that sense, you, as a mortgage lender or servicer who deals with foreclosures, must remain focused on your job, collecting and documenting everything necessary to make the preforeclosure and foreclosure processes go smoothly whenever the time comes.

Advice to Mortgage Lenders When Prepping for Foreclosure During the Pandemic 

With the vaccines only starting to be administered and with the latest COVID-19 economic relief bill signed into law nine months after the CARES Act, you cannot expect things to get back to normal immediately. Therefore, the negative impact of COVID-19 on the economy, including housing, will persist far into 2021. Due to this, you need to be prepared for continual increases in foreclosures, including from residents of normally good standing with your mortgage lending or servicing company. To better prepare for an influx of foreclosures in the new year, consider the following tips:

With many reports claiming that the COVID-19 pandemic could continue well into 2021—and some reports even suggesting that it could last into 2022—the economic impact is likely to remain substantial and adverse. Illinois alone approximately has more than a 20 percent unemployment rate since the start of the pandemic. All this job loss and financial strife means more foreclosures, mortgage loan modifications, workouts, and other adjustments to mortgages are bound to occur, at least eventually. With echoes of the Coronavirus Aid, Relief, and Economic Security (CARES) Act signed into law this past March still being felt today, mortgage lenders and mortgage servicers might be considering their responsibilities at this time in offering new—or extending prior—COVID-19 forbearance plans for their borrowers. Here is an overview for your reference. 

Mortgage Lender Responsibilities Per the CARES Act, Then and Now

Provided the mortgage being serviced is federally backed, mortgage lenders and servicers are required by law at this time to offer the following forbearance policies to eligible homeowners:

• The CARES Act enables forbearance of mortgage payments for up to six months in which interest accrues and the payments are only postponed.
• The lenders have the right to extend the forbearance another six months for a total of one year of a forbearance in mortgage payments due to the COVID-19 pandemic.
• During these forbearances, servicers cannot charge fees or interest beyond what would have been provided for with the homeowners’ usual monthly on-time mortgage payments.
• An important new interpretation of the CARES Act from federal regulators confirms that servicers cannot require repayment of the missed mortgage payments in one lump sum at the end of the forbearance.
• When the forbearance period ends, the lender will work with the homeowner to devise a loan modification, workout, or other plan that will allow them to pay back the missed payments over time.

Why Expanding COVID-19 Forbearance Policies Might Be a Good Idea

According to the U.S. House Committee on Financial Services, nearly 70% of all homeowners have federally-backed loans that qualify for these forbearance policies, which means you as a lender technically are not required by law to offer it to all your borrowers. However, despite this, you might want to consider the expansion of your COVID-19 forbearance policy to all homeowners and not just those with federally backed loans. Reasons to do this include:

Lawmakers in the U.S. recognized from the beginning of the COVID-19 crisis that homeowners would need help with mortgage payments in order to avoid a surge in mortgage foreclosures. The Coronavirus Aid, Relief, and Economic Security Act had several provisions for homeowners, including:

• A moratorium on foreclosure of single-family homes with federally backed mortgages, which the Federal Housing Finance Agency recently extended until at least Aug. 31
• A mandate that forbearance be provided to homeowners, regardless of their delinquency status
• The loosening of restrictions on modifying loans

Illinois has issued executive orders that put a moratorium on evictions, though it also said that homeowners are still responsible for making mortgage payments. Housing market analysts are concerned that the downturn in the economy could lead to the state’s worst mortgage delinquency rate since the Great Recession of a decade ago.

Obstacles Facing Mortgage Payments

More than one million Illinois residents lost their jobs due to businesses being forced to close or reduce staff in response to the coronavirus outbreak. Even with unemployment benefits and stimulus payments from the federal government, many homeowners have tighter budgets with which to make mortgage payments. In some cases, homeowners may be forced to choose between staying current on their mortgage payments and paying for other necessary expenses.

During the Great Recession, so-called “zombie homes” were a common problem for mortgage lenders. Zombie foreclosure is a way of describing a situation where a home is abandoned after the occupants received a foreclosure notice. The number of zombie foreclosures has decreased since the height of the housing market crash. A recent report on foreclosures during the fourth quarter of 2019 found that 3.1 percent were zombie foreclosures, which is down 5.8 percent from the first quarter of 2014. Illinois had the fourth-most zombie foreclosures in the U.S. with 943, which is 4.7 percent of its foreclosures. Abandoned homes are still a problem that can decrease the resale value of the property.

How Zombie Foreclosure Occurs and Why It Is a Problem

When a homeowner receives their initial foreclosure notice, they may decide to abandon the property instead of contesting the foreclosure process. They may believe that they have no hope of paying back the mortgage and that they are better off leaving before the foreclosure is completed. This causes a major problem for mortgage lenders because an unoccupied property will fall into disrepair. In some cases, the previous occupants may have left the home in bad shape.

A zombie home will decrease in value, even if the lender works to maintain its appearance. The lender cannot sell the home until the foreclosure is finished because it is still in the previous occupant’s name. A zombie home will also decrease the property values of other homes in the neighborhood, some of which the lender may be trying to sell.