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:
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