Homeowners who expected temporary financial relief from the COVID-19 pandemic may be in for a big surprise next year, The Wall Street Journal reported.
While the Coronavirus Aid, Relief and Economic Security (CARES) Act allows mortgagees with federally backed home loans to skip payments for up to one year if they have been impacted by the coronavirus, the measure fails to say what happens next.
Vincent Russo, a 43-year-old Florida waiter who was laid off last month, told the WSJ that his mortgage servicer said a giant balloon payment was possible after the 90-day forbearance period.
“They want to make it as difficult as possible for people not to give them their money,” he said of AmeriHome Mortgage Company. “I said, if someone doesn’t have income, how do you expect them to pay three or four months all in one big chunk?” AmeriHome declined to comment, the WSJ wrote.
As of April 12, nearly 6 percent, or three million mortgages, were in forbearance, according to the Mortgage Bankers Association. Under the terms of a forbearance agreement, a borrower may skip or make reduced payments during the agreed-upon time.
If mortgage servicers require lump-sum payments, borrowers can face foreclosure, damaging their credit score and exacerbating the financial pain inflicted by the economic disaster, the report said.
Shira Klahr, a single mother in Long Island, New York, told the paper that she was laid off from her sales job in March. Her mortgage holder, JPMorgan Chase & Co., offered three months of forbearance, but a $9,000 payment may be required for the months she missed.
Chase Spokeswoman Keosha Burns told the WSJ that most Chase borrowers can make up missed payments at the end of the mortgage or at the time when the home is sold.
A Federal Housing Finance Agency (FHFA) spokesman told the WSJ that borrowers with a Fannie- or Freddie-backed mortgage aren’t required to pay back their forbearance in a lump sum.
As the number of Americans requesting suspensions on their home loans rises, Fannie Mae and Freddie Mac are relaxing rules for mortgage servicers, MarketWatch.com reported.
Fannie Mae and Freddie Mac will be allowed to purchase loans in forbearance, the FHFA said Wednesday (April 22). This represents a shift from the previous rule that prohibited delinquent mortgages and loans in forbearance for purchase by the two government-sponsored mortgage enterprises.
“We are focused on keeping the mortgage market working for current and future homeowners during these challenging times,” FHFA Director Mark Calabria said in the statement. “Purchases of these previously ineligible loans will help provide liquidity to mortgage markets and allow originators to keep lending.”
As PYMNTS has reported, the damage caused by the COVID-19 epidemic has been widespread, leaving nearly 20 million Americans unemployed.