AS MORTGAGE FORBEARANCE PROGRAMS END, FORECLOSURES MAY BEGIN TO RISE.
In response to the COVID-19 pandemic, Congress passes the CARES Act in April 2020 which included, among other things a foreclosure moratorium for all federally-back residential mortgages- that is, all mortgages backed by Fannie Mae, Freddie Mac or the FHA- approximately two thirds of all residential mortgages. In addition, the Cares Act created a forbearance program for homeowners who suffered a financial hardship due to COVID-19. The forbearance program allows borrowers to skip their monthly payments for up to 180 days. However, both the foreclosure moratorium and forbearance options were only temporary with the foreclosure moratorium ending in July 2021 and the forbearance program set to expire in September 2021. As of July 2021, more than 1.8 million home mortgages were in a forbearance.
As forbearance programs expire, real estate experts are predicting an increase in foreclosure activity. While a repeat of the massive waive of foreclosures following the 2008 financial crisis, the end of the government’s assistance programs means “we’re likely to see a steady increase in default activity for the balance of the year” according to Rick Sharga, executive vice president of Realtytrac, a real estate and foreclosure database.
Upon the expiration of a mortgage forbearance, homeowners will need to pay the missed payments and resume making their regular monthly payments. If they are unable to make up the missed payments (which will be the case for most people) they may be at risk of foreclosure. Fortunately, there are several options for homeowners who have missed payments under a forbearance program:
-Loan Modification: A loan modification is when your lender voluntarily agrees to modify the terms of your mortgage to reduce the monthly payment. Typically, this is accomplished by capitalizing the past-due interest and extending the maturity date, reducing the interest rate, or both. In some cases, there may be a balloon payment due at the end of the loan.
-Refinance: With today’s low interest rates, refinancing into a new fixed-term mortgage is a great way to deal with past due payments after expiration of a forbearance program. However, many borrowers who have missed mortgage payments may have also defaulted on other debts, potentially making it difficult to qualify for a refinance loan.
-Sale: Real estate values have increased significantly since the start of the pandemic. If you can no longer afford to make mortgage payments, selling now while the market is hot can pay off your mortgage and leave you with cash in your pocket to find someplace new.
-Chapter 13 Bankruptcy: Chapter 13 of the Bankruptcy Code has been used to cure mortgage defaults by consumers for decades. Under Chapter 13, homeowners are allowed up to 5 years to cure mortgage defaults in equal monthly installments. So, for instance, someone who is $30,000 behind on their mortgage could file Chapter 13 Bankruptcy and be allowed to pay the past due payments at $500 each month, in addition to making the regular monthly payment. Upon completion of the payment plan, the mortgage is in good standing and the homeowner simply continues to make the regular payments. Another advantage to Chapter 13 is that it also allows people to discharge other debts, such as medical bills and credit cards they may have accrued.
The Lipton Law Group specializes in helping Massachusetts homeowners avoid foreclosure and stay in their homes. If you are facing the possibility of foreclosure in Massachusetts, call Lipton Law Group at 508-202-0681 or use our quick contact form for a free consultation today.