2020 saw fewer foreclosures thanks to coronavirus aid
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Many Americans have struggled with loss of income during the pandemic, and that includes homeowners. Thankfully, lawmakers embraced coronavirus relief early on, giving homeowners substantial respite.
The CARES Act, which came into effect at the end of March, included some important provisions to help homeowners. One of these provisions was abstention, or the right to withhold mortgage payments for up to 360 days, and the other was a federal moratorium on foreclosures for government guaranteed home loans. The original moratorium has since expired and has been extended by individual agencies (Fannie Mae, Freddie Mac and HUD) until December 31.
In fact, according to new research from The Ascent, foreclosures are down in 2020 in a meaningful way. In November 2019, there were around 50,000 seizures, but that number was closer to 10,000 in September 2020. As encouraging as this news may be, it begs the question: what will happen once these protections expire on December 31?
How will owners behave after the CARES Act?
Lawmakers are working on a second coronavirus relief package follow the CARES law, but they haven’t reached a deal yet. And at the moment, the likelihood of having a formal relief program in place by January 1 is pretty slim.
After December 31, homeowners protected by foreclosure moratoriums may be out of luck, although some may also have the opportunity to work with their lenders to get their loans back on track. In addition, these moratoriums may be extended to give troubled borrowers more time to get back on their feet. To be clear, this applies to homeowners who were behind on their mortgage before the pandemic. Those whose loans are in forbearance do not risk immediate foreclosure.
Speaking of forbearance, many homeowners will see their suspended home loan period end in 2021. Under the CARES Act, borrowers are allowed to request an initial 180-day forbearance period followed by a 180-day extension. days.
Mortgage lenders were not allowed to deny these requests during the pandemic. However, once the CARES Act expires, they will also not be required to extend the forbearance beyond 360 days, unless a new relief package is passed into law that dictates otherwise. .
So what happens when the tolerance ends? At this point, those who have benefited will have to catch up on their mortgage payments in accordance with the agreements made with their respective lenders. (There is no one-size-fits-all method of catching up for forbearance, and each lender sets their own rules. But borrowers are generally protected from being required to make an immediate lump sum payment covering all of the individual payments they have. missed both.)
Possible problems after abstention
In addition to making up for missed payments, borrowers will also need to keep abreast of their regular and ongoing monthly mortgage payments. This could prove problematic for those whose finances do not improve before the end of their 360 days of abstention.
Now those who cannot keep up with their payments after forbearance can also contact their lenders and try to find a solution. But in the absence of a new relief program indicating otherwise, lenders won’t be forced to help or modify mortgages to make them more affordable.
It is encouraging to see that foreclosures have declined in 2020. However, the sad reality is that without a second aid program comparable to the CARES Act, that number could worsen in 2021. Distressed borrowers should not hesitate to apply. to their lenders indulgence and flexibility as they attempt to recover from the pandemic, but it remains to be seen whether they will actually get it.