COVID-19 has dealt the worldwide economy a severe blow. In the U.S., millions have lost their jobs or source of income. Many more have had their wages slashed or are teetering on the brink of joblessness.
It will be a while before business returns to normal. Until it does, how can all the people in economic distress keep up with their financial obligations?
There’s no one-size-fits-all answer that question. Everyone’s circumstances vary. Some people rent their houses; some own them. Others need to fund not only mortgages but student loans.
In this article, we’ll talk about Coronavirus-related relief for mortgage payments, student loan debt, and loans, and banking.
Mortgage Payment Relief
The good news is that federal and state governments are stepping up to protect homeowners. The bad news is that homeowners who miss payments will still have to make them up. Only a few jurisdictions are offering help beyond temporary forbearance.
Forbearance is when your lender temporarily suspends debt payments. In most cases, you’ll still have to make payments, but hopefully, you’ll be in a better position to pay later on.
Assess your situation
The Consumer Financial Protection Bureau (CFPB) says the first step for COVID-impacted mortgage holders is figuring out what they can afford to pay. If they can cover their entire mortgage, they should do that for as long as possible. In the meantime, they can start investigating other options.
Suppose you can’t make your mortgage loan payment at all, or you can only scrape up enough money for a partial payment. In that case, you’ll need to get in touch with your mortgage provider as soon as possible.
Unfortunately, this is one issue you probably won’t be able to resolve online, so you’ll have to call your mortgage servicer. Set the alarm and place your call as early in the day as possible. If you have to wait until later in the day, be prepared: even under the best of circumstances, the call can take a long time. It’s possible you may be on hold for hours.
Once you’ve reached an agent, document each conversation with your lender. You’ll want to record who you talked to, the time and date of the call, a summary of the discussion, and action items.
When a lender offers mortgage forbearance or payment deferral (another type of repayment option), you need to clarify the terms of repayment. One lender might insist that the missed payment(s) get made up as soon as regular payments start back up. Another lender will tack the amount onto the end of the loan term. Private lenders vary widely in their COVID responses.
For the most up-to-date information about your mortgage, contact your mortgage provider either online or by phone. Hopefully, they will respond in a timely fashion to online inquiries so you can save phone calls if you need relief.
Federally Backed Mortgages
Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, those with federally-backed mortgage loans who are economically impacted by COVID-19 are entitled to forbearance. Borrowers need to request forbearance—a temporary halt to your mortgage payments—by contacting their mortgage provider.
You can start the contact online at www.HUD.gov, where you’ll find certified housing counselors.
Eligible federal mortgage loans include those backed by the FHA, VA, USDA, Fannie Mae, and Freddie Mac. Fannie Mae and Freddie Mac alone own or back almost half of US mortgages.
Coronavirus-affected borrowers can freeze their mortgage payments for up to six months. If needed, they can get another six-month extension. Penalties and late fees will be waived, and no delinquency will be reported to credit bureaus.
Forbearance is not a get-out-of-debt-free card, though. Regular interest will still accrue, and the payments will have to be made up. The federal loans will usually tack them on at the end, though.
State Mortgage Relief Programs
All 50 states and the District of Columbia have put homeowner relief measures in place for those who have been impacted economically by Coronavirus. These state-specific relief measures vary widely and are evolving over time. Check with your state to verify what options are available to you.
Student Loan Repayment
We all know that you should prioritize paying your rent or mortgage so you can keep a roof over your head. But when money’s tight, as if you’ve lost your job in the wake of the pandemic, it can be tempting to skip your student loan payments altogether.
If you don’t have a student loan—either you didn’t go to college or graduated without student loan debt—that’s great. But if you do, it’s important to make student loan payments a priority because defaulting on your loans will come back to haunt you in the future.
Defaulting on student loans sinks your credit score, so when you want to get a car loan or a mortgage in the future, you’ll have to pay a high-interest rate or not qualify at all. And if you’re trying to get a job that deals with finances, your potential employer will most likely run a credit check before deciding whether to hire you.
Bankruptcy probably won’t erase student loans, either. Student loans are a unique kind of debt.
Now that you’ve realized the importance of keeping up your student loan payments if, at all possible, you can relax for a minute. As you probably know if you’re paying on a student loan, repayment on all federal student loans held by the US Department of Education has been suspended until September 30, 2020. During the same period, interest rates have been reduced to 0%.
Yes, you’ve got that right—no interest and no payments on student loans through the end of September. You also won’t be subject to involuntary collection on federal student loans, including wage garnishments and offsets, during that time.
And all the while, credit bureaus will report you as making timely payments.
All these protections apply only to federal student loans. The good news, though, is that the vast majority of student loans are federal. According to a December 2018 report by academic data firm MeasureOne, 92% of student loans are owned by the US Department of Education.
There are 43 million total federal student loan borrowers. Total outstanding federal student loan debt stands at $1.4 trillion.
To determine if your loan is in that 92%, visit the Department of Education’s National Student Loan Data System at https://studentaid.gov/. In this case, the online solution is your best bet. But if you prefer addressing the situation over the phone, you can call 1-800-433-3243.
Student loan borrowers with any type of financial difficulties should always communicate with their lenders to make payment arrangements. Although the solutions may not be as generous as the temporary pandemic ones, lenders will work with you to defer (although rarely eliminate) payments.
General Banking Provisions
When the alphabet-soup federal agencies that regulate banks and credit unions realized that the Coronavirus pandemic would cause severe economic repercussions, they responded in several ways. First, they encouraged banks to work with customers whose finances had taken a hit from COVID-19. Next, they made adjustments to bank regulations.
The federal bank regulatory agencies include the Federal Reserve, the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the Consumer Financial Protection Bureau (CFPB). The National Credit Union Administration (NCUA) generally follows the lead of bank regulators.
By mid-March, the regulators issued guidance identifying ways banks could assist customers. These included waiving fees, extending payment due dates or offering skipped payments, and increasing credit card and ATM withdrawal limits. However, these actions were not mandated. Many banks have, in particular, not raised but reduced credit card limits.
Banks are subject to “safety and soundness” regulations, which include rules related to banks’ liquidity and capital. Bank regulators also have the authority to supervise banks, which includes examinations and off-site monitoring. In response to COVID-19, regulators relaxed some regulations to avoid setting off alarm bells.
For instance, on March 22, bank and credit union regulators allowed banks to modify certain loans without labeling them as troubled debt restructurings (TDRs). Under accounting principles, a TDR designation could negatively impact a bank’s financial and regulatory reporting requirements.
Regulatory agencies have been encouraging banks to make responsible small-dollar loans since the end of March. They have also urged banks to use their capital and liquidity buffers to support loans. Again, those “encouragements” have produced mixed results.
The COVID-19 pandemic has caused worldwide financial devastation. In America, relief has been offered on several fronts. These forms of assistance include mortgage forbearance or modification, suspension of student loan payments until September 30, 2020, and various banking regulations.
Mortgage relief mostly applies to the holders of federal loans. On the other hand, student loan relief was extended across the board to the 92% of borrowers who hold federal student loans.
As for banking regulations, customers have not necessarily benefited from them. Banking regulators “encouraged” but did not require banks to work with COVID-19-affected customers. Banks and credit unions themselves were the primary beneficiaries since they were not penalized for loans that ordinarily would negatively affect their ratings.
If you have any questions or concerns about your mortgage during the COVID-19 pandemic please contact your mortgage professional and get the reassurance that you need.
A and N Mortgage Services Inc, a mortgage banker in Chicago, IL provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.