What Should You Do If Your Mortgage Payments Fall Behind During the Coronavirus Crisis?
The Coronavirus (COVID-19) has caused chaos throughout the economy – in Massachusetts, and throughout the world. This post explains some options available to homeowners struggling with their mortgages or even with foreclosures during the Coronavirus epidemic. Many lenders are offering foreclosure relief and are continuing to offer loan modification programs that most borrowers are eligible to apply for.
The Coronavirus has caused us all to quickly learn to live our lives much differently. Massachusetts courts are closed, restaurants are limited to take-out only, and the roads are virtually empty. Some of us are lucky enough to be able to work remotely, while others are laid off or furloughed, or even let go entirely due to their employer’s inability to meet payroll. Businesses are struggling, employees are struggling, and most of us are stuck at home. “These are the times that try men’s souls,” which Thomas Paine said 1776, suddenly seems like a relevant statement to many of us.
For most of us, our homes are the most important investment we will ever have. Most of us have mortgages that must be paid, or else our bank or mortgage servicer will initiate foreclosure. If you are laid off or let go, your mortgage payment is probably your largest monthly obligation, and may be the first expense you are unable to pay.
Fortunately, governmental action has been relatively swift, though it does not provide complete relief for most people with mortgage issues. Below is some information about what the options are for homeowners affected by the Coronavirus.
Others may not be as lucky. The remainder of mortgages are owner by what are usually termed “private investors.” Most are trusts of mortgages administered by major banks and owned by shareholders. Historically, these have been the types of loans that are foreclosed on most quickly, and which have the fewest options for loss mitigation.
Though some states have issued moratoriums on all foreclosure sales, as of the writing of this post, the Commonwealth of Massachusetts has not done so. Therefore, any halt to foreclosures applies only to Fannie Mae, Freddie Mac, and FHA loans. It remains to be seen what, if anything, private investors will do, though some action may be forthcoming.
That said, just stopping a foreclosure does not help if your mortgage payments are behind because you’re laid off due to the Coronavirus. There needs to be a permanent solution – something like a loan modification. A loan modification is a permanent change to one or more of the terms of your mortgage. The terms commonly modified in a loan modification are the interest rate, the principal amount, and the term of repayment.
For example, what would a loan modification look like if your mortgage were for $300,000, your interest rate was 5%, you owed $10,000 in arrears, and you were five years into a 30-year mortgage? Under many programs, the solution might be to capitalize the arrears, reduce the interest rate to 4%, and extend the mortgage repayment terms so that it amortizes over 40 years. Though this is just an example, something like this would be a solution that lowers the monthly payment and allows you to resume paying your mortgage without making a large reinstatement payment.
Fannie Mae and Freddie Mac have their own loan modification called a Flex Modification. The goal of a Flex Modification is to reduce the homeowner’s monthly mortgage payment by 20%. This is accomplished by taking into consideration the current principal and interest rate. The homeowner usually must also have paid their mortgage for 12 months before they can be considered for a Flex Modification. The FHA has its own loan modification programs that are similar.
What about loan modifications for homeowners whose mortgages are privately owned? There still are probably options. Many private lenders model their loss-mitigation programs on the Flex Modification or on other programs. Some modifications may offer better terms, or sometimes may not be quite as good. In any case, it is important to remember that federal law requires that a loan modification application be submitted at least 37 days before a scheduled sale.
Ultimately, homeowners affected by the Coronavirus will have to rely on two things. First, they’ll need the emergency relief offered by the government or other institutions. This will give homeowners enough time to get back on their feet financially. That is only part of the solution, though. If the mortgage payments are still behind, homeowners will need to identify which loan modification programs are available and apply for relief.
Our strategy for getting our clients mortgage relief – things like loan modifications – is to take an aggressive stance. We frequently look for potential issues with the past servicing of the loan, or with the ways in which the bank or mortgage servicer is presently acting. There may be claims under laws like the Massachusetts Consumer Protection Act, G.L. c. 93A, which prohibits unfair or deceptive acts or practices, or the Fair Debt Collection Practices Act, which prohibits abusive debt collections. These may provide valuable leverage for bringing your lender to the table.
Our office has handled literally hundreds of loan modifications and other mortgage issues for homeowners throughout Massachusetts. We were there during the economic crisis of the last decade, and we’re still here. We have sued banks and mortgage servicers, we have negotiated solutions, and we have helped to keep families in their homes. If you are struggling with your mortgage because of the Coronavirus epidemic, or for any other reason, contact us to see if we can help.