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What to do if you can’t pay your mortgage

What to do if you can’t pay your mortgage
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The number of Americans struggling to pay their mortgages has soared as the coronavirus pandemic continues to take its toll on household finances. Almost three million homeowners are now at least one month behind on the mortgage payments, according to Mortgage Bankers Association (MBA) data, after the proportion of loans in forbearance leapt to 5.95% as of April 20, 2020, up from 3.74% just a week before. Only 0.25% of all loans through the best mortgage lenders had been in forbearance for the week of March 2, so that’s a big jump.

By investor type, mortgages backed by Ginnie Mae accounted for the largest share of struggling borrowers – 8.26% – while the combined share of Fannie Mae and Freddie Mac loans in forbearance increased from 2.44% to 4.64% week-on-week.

This is important because under the CARES Act introduced by President Trump at the end of March, in response to the coronavirus outbreak, homeowners with mortgages backed by the federal government – including Fannie Mae, Freddie Mac, FHA, VA and USDA loans - are protected from eviction. The Act also allows homeowners to temporarily reduce or suspend their mortgage payments for 12 months with no penalties.

Crucially, however, the CARES Act fails to protect mortgages that are not backed by the government, and this accounts for around half of all mortgages nationwide. 

What to do if you're struggling to pay your mortgage

What to do if you can’t pay your mortgage

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With over 22 million Americans having to file for unemployment over the past month, growing numbers of people will have concerns over how they will be able to afford to meet their everyday bills. The coronavirus stimulus check – which should be arriving if you are eligible very soon - might provide some leeway in the short term.

However, the largest monthly outgoings, such as mortgage payments, could quickly account for this cash and more. So what should you do if you are struggling to keep up the usual monthly payments on your mortgage?

Talk to your mortgage lender

Regardless of whether you have a government-backed mortgage or not, the best place to start is to contact your mortgage lender. Even if you are only worried that you might not be able to make your mortgage payment, give them a call; there is no need to wait until a payment has been missed.

What to do if you can’t pay your mortgage

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Be prepared with details about your current circumstances, including your income and outgoings, and also be ready to talk about the reasons why your situation might have changed to leave you concerned about meeting your payments.

“Given that lockdowns and associated job losses will continue in the coming weeks, forbearance inquiries will likely rise again as we approach May payment due dates,” acknowledges Mike Fratantoni, MBA's Senior Vice President and Chief Economist. “Borrowers facing COVID-19-related hardships should contact their servicer to review all of their options."

What might your mortgage lender offer

Forbearance

The option most likely to be put forward by a mortgage lender at present is forbearance, and will see your mortgage payments paused or reduced for a certain period of time. As previously mentioned, if your mortgage is backed by the federal government, the CARES Act allows you to temporarily suspend payments if you are experiencing financial difficulty due to the impact of the coronavirus on your finances.

You have a right to request forbearance for up to 180 days and also an extension for up to an additional 180 days, but you must contact your mortgage company to request this forbearance. There won’t be any additional fees, penalties or interest added to your account, but importantly, your regular interest will still accrue. Other than telling your servicer that you have a pandemic-related financial hardship, you won’t need to submit additional documentation to qualify for this forbearance.

What to do if you can’t pay your mortgage

(Image credit: Shutterstock)

If your mortgage is not through a government-backed lender, forbearance should still be an option, but the exact options available to you may differ. You will still need to be prepared with the relevant income and expenditure workings and the reason why your circumstances have changed, but there may be a few more things that your lender will want to see. Nevertheless, once again, it is vital to call and discuss your situation before a payment is even missed.

Regardless of the type of loan you have, you will still be expected to make up the discounted or missed payments at the end of the forbearance period. The discussion with your lender should include consideration of how long it might take you to make these payments up; it is important to tell your lender if you feel you won’t be able to meet the payments that are suggested, and try to ask for different terms. Alternatively, it might be possible to secure a loan modification instead.

Loan modification

With a loan modification, new terms are agreed for your existing mortgage without having to refinance your mortgage. Loan modification is usually the final step used to avoid foreclosure or for people who are already delinquent on their payments, with the overall aim to make your monthly mortgage payments more affordable, perhaps by reducing your interest rate, extending your mortgage term, or altering the type of loan you have.

Forbearance is usually the first option offered to those facing problems with their mortgage payments, so if you think you need to go straight to loan modification, you will be asked for evidence of your hardship.

That said, the CARES Act has given mortgage lenders more flexibility to authorise loan modifications than they had before the coronavirus, so it should be an option that they are willing to discuss. As before, though, contacting your lender early to find out your options is key.

If all else fails, and you find yourself struggling across all aspects of your finances, you should consider something like the best debt consolidation companies, to try and get your money in order - including those mortgage payments.