What to do if you can’t pay your loan

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The mortgage default rate jumped almost four percentage points to 8.22% in the second quarter of 2020, when the economic fallout from the coronavirus pandemic really started to be felt, according to a new report from the Mortgage Bankers Association.

FHA loans– popular among first-time home buyers who might not have the savings to make a big down payment – led the pack in defaults, reaching 15.6% past due, according to the National Delinquency Survey. This is almost double the rate of all loans and the highest delinquency rate since MBA started its record high in 1979. The delinquency rate includes loans that are overdue by at least one payment, as well as the delinquent loans, but does not include foreclosure mortgages.

“The effects of the COVID-19 pandemic on the ability of some homeowners to make their mortgage payments couldn’t be more apparent,” said Marina Walsh, vice president of industry analysis in the research department and in economics of the MBA. “The almost 4 percentage point increase in the delinquency rate was the largest quarterly increase in the history of the MBA survey. ”

The news comes as forbearance mortgages fell for the ninth consecutive week, to 7.21%. So why are defaults on the rise as forbearance numbers decline, especially since the government’s first stimulus bill allowed up to 360 days of forbearance on many mortgages?

The answer may lie, in part, in what is not covered by the CARES (Coronavirus Aid, Relief, and Economic Security) law. About 30% of mortgages are held by lenders who are not subject to the rules of the CARES Act, which only apply to government guaranteed mortgages, including Fannie Mae, Freddie Mac and loans from Ginnie Mae.

Additionally, there are likely borrowers who are unaware that they are eligible for forbearance under the CARES Act.

Low-income borrowers are more likely to face delinquency

Not all types of mortgages have been hit at the same rate, according to MBA data. Loans to help low-income people and first-time buyers have been hit the hardest.

FHA defaults topped the list, increasing 643 basis points from the first quarter. A basis point is one hundredth of a percentage point. Offender VA loans increased by 381 basis points, followed by conventional mortgages with an increase of 307 basis points.

FHA loans tend to have higher delinquency rates than other loans because they are aimed at low income borrowers or people with a smaller down payment and lower credit score.

Borrowers most in need of mortgage relief may not know their options

Although the CARES law has received a lot of media coverage, its function of forbearance does not seem so well known. More than half of mortgage holders (56%) are unaware that there are relief options if they are in financial difficulty due to the coronavirus, according to the Fannie Mae National Housing Inquiry in August.

Low-income borrowers made up the bulk of those unaware of available help, according to the survey of more than 3,000 people.

Hispanic borrowers made up the largest share of borrowers who said they were unfamiliar with relief options (65%), followed by black borrowers (51%), white borrowers (41%) and Asian borrowers (8 %).

There is a huge disconnect between borrowers, their lenders, and the way the relief message is delivered, says Anna DeSimone, personal finance expert and author of “Housing Finance 2020”.

“Delinquencies in America have been a problem because consumers aren’t able to have this one-on-one conversation with their lenders,” says DeSimone. “They might not even know who their current agent is because the loan has been sold 800 times. If consumers are not properly informed about loan relief options and are not able to contact lenders, you will see an increase in defaults.

Lenders and organizations tasked with helping borrowers find help should also ensure that their information is available in multiple languages. About 5.3 million American heads of households have little or no ability to speak English, according to a report from the Urban Institute.

Part of the problem is the language barrier, DeSimone says, but some borrowers who are behind on payments might not realize there are laws protecting them, “so they avoid answering the phone because they’re afraid it’s a collection agency. “

Lenders can do more, says DeSimone. Instead of just making phone calls to defaulting borrowers, they should put friendly forbearance options videos on their Facebook page or website.

Can’t pay your mortgage? Here is what to do

The first thing homeowners facing financial hardship from the coronavirus should do is find out if their loan is government guaranteed. If so, then they are covered by the CARES law. This means that they will be eligible for mortgage forbearance by simply telling their lender that they cannot pay their mortgage bill. There is no proof of hardship or documentation required.

But you need to take that first step, even if you haven’t missed a payment yet.

“It’s important to call before the loan is in default,” says Janelle Allison, vice president of mortgage resolution at Navy Federal Credit Union. “This advice is true even if you have already had forbearance in the wake of the pandemic. These are unprecedented times, and some lenders will try to work with homeowners as the economy looks to rebound.”

Loans held by Fannie Mae, Freddie Mac or Ginnie Mae qualify for mortgage forbearance under the CARES Act, which can last up to six months, with the option of extending the forbearance for an additional six months.

The two Fannie Mae and Freddie mac provide loan research tools you can use to determine if your mortgage is held by one of the large government funded companies. Keep in mind that the company you are making your mortgage payment to may not own your loan.

Borrowers not covered by the CARES law should also contact their lenders. In many cases, lenders work with borrowers to develop an affordable plan.

However, for borrowers who do not receive help from their lenders, either because they cannot contact them or because the lender is unable to come up with a financially feasible plan, they should contact an advisor. in housing approved by the Ministry of Housing and Urban Development. agency.

“An advisory agency can help resolve mortgage default and default,” says Leslie Tayne, a New York-based debt settlement attorney. “Borrowers can also try many forms of communication if they can’t get in touch with their provider, from email to online chat. Finally, they can file a complaint with the Consumer Financial Protection Bureau (CFPB).

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