The problem with mortgages during coronavirus
Letâs say you keep a house and have a mortgage. And youâve been laid off, furloughed, had your income cut or your hours reduced at the office because of the coronavirus panic.
You are in a jam.
So you are hoping for what is called âforbearanceâ on the mortgage payments, which in simple terms means your bank will back away for a few months until you can get your familyâs finances in the upright position.
But there is a problem with forbearance. Iâll let a reader of mine explain it:
John: I am semi-retired and survive on a relatively fixed income. Like a lot of others, I have been furloughed from my job due to the coronavirus pandemic, but have bills to pay â? most of all, my mortgage payment to Chase bank.
Our governor has asked banks doing business in Connecticut to present forgiveness on mortgage payments for 90 days to those of us who are in this particular precarious situation. So I attempted to contact Chase bank re: same.
Itâs not possible to talk to a live person, but I did get yourself a recording stating that a 90-day âforbearanceâ policy is in place. But the 3 months forbearance amount is due 100 % after the 90-day period.
If Iâm struggling now, how on the globe am I going to afford a one time of almost $6, 000 in 3 months? M. D.
There is a straightforward solution to this problem, but not everybody is able to use it. Iâll explain. Something really needs to be done about this, and Iâm endeavoring to do just that.
Rather than giving homeowners an extra 90 days to pay for â? which, like M. D. says, they wonât be able to handle â? banks and other mortgage businesses should simply add three months, or six months, or a year to the end of the present mortgage.
This way M. D. and all other millions of stressed mortgage holders can restart their payments once the economy is out of its coma and jobs are again available. Banks lose a little income right now, but they recover it on the back end of the mortgage.
But itâs not. And hereâs why.
Not all mortgages are owned by the places where the payments are getting. Chase, for instance, might only be servicing M. D. âs mortgage. The loan itself could have been sold to another investor, or packaged into what is called a mortgage-backed security.
When the loan comes, itâs up to the new owner to determine if heâll allow the mortgage to be extended, or whether the homeowner is merely given 90 days of forbearance â? or no forbearance at all.
And if the mortgage is on a home thatâs worth a lot more than the outstanding loan balance, then the mortgage holder may just decide to foreclose on the home.
It sucks. And itâs not very nice. But thatâs just how loans work.
So, the perfect solution is is for the Trump administration and Congress (and whoever else needs to get involved) to make forbearance and, especially, mortgage loan extensions mandatory.
Mortgage investors â? banks, investment firms, Fannie Mae â? need to be required to place payments that must definitely be missed now because of coronavirus hardship on the back end of the loans. Fannie Mae, especially, must certanly be required to do that, since it is undoubtedly the largest buyer of mortgages in america.
A source at a significant bank told me it wouldnât be out of the question to extend loans that it still owns. But there is a problem when a bank doesnât own your debt anymore and is just servicing it for an investor.
By the way, last week I explained this problem to some body with close connections to the Trump administration. So hopefully this is already being worked on.
As for M. D., Chase got back to him after I spoke with the bank. He was told the options that would be considered are âextending your payment assistance period, adding the missed principal and interest to the end of the loan, a repayment plan or a modification.â
So if putting the mortgage payments you canât make on the end of your loan seems good to you, ask your bank. Maybe the ba