PHOENIX (3 On Your Side) - This week, President Joe Biden extended a ban on foreclosures for three months to help people struggling to make mortgage payments during the pandemic. The White House also lengthened the enrollment window for borrowers who want to request a pause or reduction in mortgage payments.
The protections are for federally backed loans. According to the order, mortgage servicers cannot start the foreclosure process through the end of June. Borrowers can request forbearance, or a pause on loan payments, through the same time. Before the extensions, these measures, which were initially part of the CARES Act, were set to expire at the end of March. Eligible borrowers also can request a six-month extension on forbearance agreements.
Marina Walsh, an analyst for the Mortgage Bankers Association, says there was concern that a wave of foreclosures would begin without extra relief. "We reached a record for seriously delinquent loans for FHA loans, so in terms of targeting borrowers that are the most distressed, it's a really positive development, and we think it's needed to help those borrowers get back on their feet," she said.
According to the MBA, an estimated 2.6 million homeowners are in forbearance right now.
"What we have found through our forbearance study is there were those borrowers that entered a forbearance agreement with their servicer almost as an insurance policy, but the servicer said, 'Hey, if you can continue to make your payments, that would be great,'" Walsh said. "A lot of those have already exited forbearance, so what we see in our data is those that are left in forbearance are probably truly the distressed borrowers."
Even so, Walsh says struggling borrowers are in a better position than they were during the Great Recession.
"The good thing about right now versus the Great Recession is we have a huge housing inventory crisis, so a lot of these borrowers do have equity in their homes," Walsh said. "Worst case scenario, it may not be foreclosure, but it may mean moving to a different housing situation."
If you are requesting forbearance, the Consumer Financial Protection Bureau says there are a few things to keep in mind.
- Relief is not automatic. You have to contact your loan servicer to see what options are available to you.
- Missed payments must be repaid, but servicers are not allowed to demand repayment in one lump sum for most loans.
- There are no extra penalties, but regular interest will accrue.
The CFPB also says it's important to remember that you do not have to pay to enter into a forbearance agreement. If someone asks for an upfront payment to help you get mortgage relief, it's likely a scam.