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Loan Modifications During COVID-19

Thinking about asking for a loan modification during the Covid-19 pandemic? This post may help guide you. To speak with our team directly, please do not hesitate to contact our office immediately with questions and concerns.

Since the first cases of the coronavirus in the United States in January 2020, healthcare providers, scientists and government leaders have grappled with treatment, finding vaccines or other defenses and limiting the spread. In the early months, state and local government officials in particular imposed state-at-home mandates and ordered the closure of many businesses. Since the late spring and into the summer, phased and limited openings have been allowed. Even with recent loosening of restrictions, COVID-19 has left many businesses and employees without income. The economic downturn has threatened many homeowners with the loss of their homes in foreclosure. In turn, the federal government and banks have adopted measures to help you keep your home in these challenging economic times.

A Temporary Halt to Foreclosures During Covid-19

If you have a loan backed by Fannie Mae, Freddie Mac, the Veterans’ Administration, the U.S. Department of Agriculture or the Federal Housing Administration, you have protection against foreclosure through at least August 31, 2020. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES) was enacted as an effort to mitigate against potential home loss. The law prohibits the initiation, continuation or finalization of foreclosure proceedings between March 18, 2020, and August 31, 2020, on loans backed by the federal government or by Government-Sponsored Enterprises (GSEs)--Fannie Mae, Freddie Mac or Ginnie Mae. You can find out whether your loan is backed by a GSE or the federal government and, thus, qualifies for CARES Act protection through a number of sources: *Contact your servicer. Your monthly statement should contain the name, address and telephone number of the servicer. You may also search through the site for Mortgage Electronic Registration Systems, which allows you to find the servicer based on your property address. Also, upon your written request, the mortgage servicer must furnish you the name, address and telephone number of the owner of your mortgage. *Lookup Tools. Both Freddie Mac and Fannie Mae have self-service look up tools for you to know if either owns your mortgage. To use the tool, you will need your property address and the last four digits of your Social Security Number.

Forbearance During Covid-19

With a federally-backed or GSE-backed loan, you qualify for a forbearance on payments under the CARES Act if the COVID-19 pandemic causes you financial hardship. While the specifics depend on the particular mortgage, the forbearance typically comes as a suspension of or reduction in your payments. The law gives eligible homeowners a period of 180 days, with an option to request an additional 180 days if the financial hardship continues. These programs do not relieve you of the repayment obligations. At the end of the suspension or reduction period, you will still owe the unpaid amounts. With GSE or federally-backed loans, you will not be required to make a lump-sum payment at the end of the period to cure the unpaid amounts. Instead, the loan servicers for these loans may offer options, such as: *A repayment plan *Deferrals, with the unpaid sums due either upon sale or refinance of the home or at the end of the term Once such deferral takes the form of a junior lien, otherwise known as a “COVID-19 Standalone Partial Claim,” is available to those whose loans are backed by the U.S. Department of Housing and Urban Development (HUD) or the Federal Housing Administration (FHA) and who were no more than one month behind as of March 1, 2020. Many banks and other lenders also afford forbearance plans. The length of the period and repayment terms vary by institution.

Loan Modifications During Covid-19

You can save your home through a loan or mortgage modification if you face the threat or imminence of foreclosure. The grounds for which you may claim a hardship are broader than allowed for protections offered under the CARES Act. Typically, these include: *Divorce *Illnesses or disability that result in the loss of income *Property losses not covered by insurance or other sources *Death of a family member who earned income *Hurricane, tornado outbreak, flood, earthquake or other event causing a natural or declared disaster In a modification, the lender does not grant a new loan as in a refinance. The original one still exists, but the lender agrees to change the terms. Changing the contractual agreement has as its ultimate goal lowering your monthly payment. Those engaged modifications or housing counseling often seek a payment such that the borrower’s monthly debt does not exceed 31 percent of gross income. In one approach, your bank or other lender may add the amount of delinquent payments to the unpaid balance and, in many cases, will generate a new repayment length. Your new monthly obligation will be calculated based on the new number of months and the recalculated balance. In effect, you borrow the amount of your delinquency and pay them over a period of time. Other changes may include: *Converting a variable or adjustable-rate to a fixed-rate. With this change, you seek to avoid higher monthly payments that result from increased rates. *Extending the term of the mortgage. The number of months you have to repay is increased, for example, from 30 years to 40 years. The lender then amortizes based upon the longer period of time. *Lowering the interest rate. Such changes can be temporary or permanent. *Reducing the principal balance. The lender decreases the amount of principal that you owe, so that you are paying back less. Such an agreement effectively is a partial forgiveness. You might have income taxes to pay on any reduction of principal.

Your Credit Report

The COVID-19 relief bill offers certain borrowers protection against negative credit report information arising from forbearances or modifications. By default, a lender may report payments not made under a forbearance agreement as delinquent. The CARES Act requires the lender or servicer to report your account as current if you were current on payments at the time you entered into a forbearance or modification arrangement. You get this protection even if Fannie Mae, Freddie Mac, Ginnie Mae, the Veterans’ Administration, HUD, or the U.S. Department of Agriculture does not back mortgage. If you were behind at the time the lender afforded you a forbearance or modification, the lender may continue to report your or account to the credit bureau as delinquent. Once you have cured the delinquency or default, the lender or servicer must tell the credit reporting agency that you are current. These protections apply to arrangements made between January 31, 2020, and 120 days after the end of the national coronavirus emergency.

Getting Your Credit Report

The information furnished to a credit bureau affects your score. Accurate credit reporting is crucial for a good score and your prospects of obtaining credit, insurance or even employment. For those reasons, you need to regularly review your credit report for errors that you can dispute and have removed from the report. In normal times, you get one free credit report per year from each of the major credit reporting agencies -- Equifax, Experian and Transunion. You can obtain the report through annualcreditreport.com. In response to the coronavirus pandemic, these credit reporting bureaus are providing you free weekly reports through April 2021. You may dispute errors on your report either by phone, mail or online. The Federal Trade Commission has a sample letter to guide your written dispute. If you contend that the servicer or lender has incorrectly reported you as behind rather than current, you likely need receipts or statements to show you were current at the time you sought relief. You may ask the credit reporting agency to include on your report a statement that you are presently unable to pay due to the coronavirus pandemic.

Finding the Best Option During the Pandemic

HUD approves agencies and people who offer housing counseling for homebuyers and those facing the possible loss of their home. As to foreclosure prevention, counselors assist you with getting information from the servicer or company on options for modification or forbearance. They explain those alternatives to you and help you determine what constitutes an affordable plan for you. To that end, if you seek housing counseling, you will need: *Your most recent payment *The regular monthly amount *The amount owed *Your recent paystubs or other information about your monthly income You can also contact your bank or lender directly to learn your options if you experience a financial hardship.

For more information on how to navigate the loan modification process during this pandemic, contact our office and speak with our legal team today!
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