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Officials give borrowers a huge break in wake of COVID-19 pandemic
Why making payments is important to your financial future
Over the past month, leaders have imposed strict public guidelines in response to the coronavirus outbreak, forcing the closure of millions of schools, offices, retail stores, restaurants and more. For the week of March 16th, the Department of Labor reported 3.28 million new unemployment insurance claims. And now, economists project total ‘employment reductions’ in the range of 47 million—an unemployment rate of 32.1%.
But to help curb financial hardship across the country, the federal government has stepped up its relief efforts. As part of the $2T COVID-19 stimulus bill known as the CARES Act, homeowners with federally backed loans can request forbearance for up to 180 days. After that period expires, struggling families can request another 180-day grace period, bringing the total pause on payments to 1 year.
In addition, lenders are temporarily waiving late fees, suspending their reports to credit bureaus, and delaying foreclosures and evictions for a minimum of 2 months. Most non-government backed mortgage servicers are also adopting similar policies.
For those who have lost their jobs or fear future layoffs, the announcement comes as a tremendous sigh of relief. Now, the question begs—is CARES too good to be true?
The facts about forbearance
As Americans settle into this newfound period of COVID-19 ‘hibernation,’ they’re also putting more intense focus on their financial priorities. Experts agree that now is the time to limit your spending, pay your essential bills, and pad your emergency savings if possible.
Most importantly, it’s imperative that you not take advantage of mortgage relief opportunities unless absolutely necessary.
Sure, the offer is super tempting. The majority of Americans are used to spending 25% or more of their monthly income on housing. Having that extra cash in pocket could eliminate a whole lot of financial stress caused by the current crisis.
But let’s not forget the whole point of the stimulus package, which is to provide temporary relief to our country’s neediest individuals. Experts agree: If you can still manage to pay your mortgage obligation each month, you should continue to do it!
At the federal, state and local levels, we are seeing incredible acts of kindness. To help keep families afloat and stimulate the economy, Congress is about to cut checks to more than 80% of American adults—no questions asked.
How much do you qualify for?
$1,200 Amount provided to adults with annual incomes up to $75k*
$2,400 Amount provided to couples with annual incomes up to $150k**
$500 Additional payment per qualifying dependent child under 17
**Couples earning up to $198k per year will receive reduced checks (sliding scale reduction)
For more specific considerations, calculate your check via The Washington Post
President Trump hopes to have the money dispensed via direct deposit or traditional check as early as April. If your income ability has only been slightly affected by the coronavirus pandemic, the stimulus check will serve its purpose. Ideally, the supplementary income should be put toward everyday essentials and—of course—your monthly mortgage payments.
Learning from history
There’s no doubt that the government has been wonderful with providing financial relief measures over the years. For instance, to help stabilize the housing market, the Obama Administration introduced HAMP in 2013—the Home Affordable Modification Program. Back then, New York City foreclosures rose 139% year-over-year.
The move seemed like a godsend. But in the end, upwards of 100,000 homeowners saw their credit scores destroyed overnight. They may have saved their homes for a short time, but in the long run, such government ‘relief’ led to financial ruin.
“While hardship numbers are tough to come by, consumer attorneys and financial experts report it is a widespread and growing problem,” wrote Catherine Curan of the New York Post back in 2013. “Homeowners with good credit can see their scores plummet to subprime. Credit limits and access are slashed, and consumers cannot refinance their loans.”
This is just one recent example of how the system can cause irreversible consequences for people looking for quick handouts. In the end, it’s better to make your mortgage payments, even if it means you have to scrape by for a couple of months.
In these troubling economic times, Everest inspires our valued clients to stay healthy, hopeful and smart. We are endlessly grateful for the financial relief opportunities being offered by our elected officials. But if you’re thinking about making the call to your mortgage lender, we urge you to reconsider. That is, unless you are sincerely struggling.
And no matter what you decide, don’t just ignore and stop making payments. If you cannot afford to pay your mortgage due to COVID-19-related hardship, promptly contact your lender’s servicing department. Follow their directions (some do it by phone and others want you to complete questionnaires and submit online), and listen to your options. Then contact Everest Equity with any questions or concerns or if you simply want to discuss your decision.
For more information on forbearance eligibility and guidelines, visit Investopedia.
Everest says: distance yourself from financial traps!