Many banks are offering mortgage relief options during the COVID-19 outbreak, but because of how the … [+]
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The mortgage market is complicated—even for someone who covers it on a regular basis. Nothing’s made that more apparent than the last week.
That was when Bank of America announced its COVID-19 relief options. For its mortgage holders, that meant a three-month deferral plan—basically skipping three months of payments—and adding those onto the back-end of the loan.
Ally Bank announced something similar, only with up to 120 days of deferred payments.
These are both great options for borrowers facing financial hardship due to the coronavirus outbreak. The only problem? Not all Bank of America and Ally customers may be eligible for them (and I heard from plenty of customers who were told exactly that).
To understand why, it’s important to know how the mortgage market works.
Here’s a shortened version of the story: Lenders issue loans to homebuyers. Once those loans close, they’re often sold—to Fannie Mae and Freddie Mac, namely—to keep the lender liquid. Sometimes, the original lender continues to service the loan, still managing all customer communications, payments, and more, causing even more confusion for the customer.
Therein lies the issue. Because Ally, Bank of America, or the original lender doesn’t own those loans anymore, their specific COVID-19 relief options don’t apply to the borrower either. Instead, mortgage holders can only leverage whatever relief plans their loan’s owner has offered.
This goes for Fannie Mae and Freddie Mac-owned loans, as well as loans insured by the Federal Housing Administration (FHA). As of now, the GSEs—Fannie and Freddie—are offering forbearance up to 12 months or a 60-day deferral. With forbearance, a homeowner can lower or suspend their payments but will owe the overdue amount in full once the forbearance period ends. With the deferred payments, borrowers would owe the skipped payments at the loan’s maturity or pay-off date or when the property is sold—whichever comes first.
On FHA loans, only forbearance is an option (and only in certain cases). Additionally, the Department of Housing and Urban Development will not foreclose on homeowners for the next 60 days.
If you’re not sure who owns your loan, you can use the Freddie Mac and Fannie Mae lookup tools to see if one of the GSEs lays claim to it. You can also look back to your closing paperwork to see if you have an FHA-insured loan. (If you were charged an upfront mortgage insurance premium, you have one).
In the end though, it might take contacting your servicer (after many hours in the phone queue) to find out who really owns your loan—and what mortgage relief options you’re eligible for during the coronavirus outbreak.