Mortgage payment suspensions catch on amid coronavirus

The idea of giving homeowners a timeout from paying their monthly mortgages during the coronavirus outbreak is spreading across the country like, well, like coronavirus.

A growing list of states have either made deals or ordered lenders in their states to temporarily waive mortgage payments and halt foreclosures and evictions — anything to keep the financial woes of the COVID-19 outbreak from ending up on the streets.

California Gov. Gavin Newsom and New York Gov. Andrew Cuomo, who lead two of the states hardest-hit by the virus, both announced three-month suspensions of mortgage payments for those suffering financial hardship from the coronavirus crisis.

It’s a tantalizing option for governors in other states as millions of suddenly unemployed Americans face the prospect of choosing between making a mortgage payment or keeping cash on hand for necessities like food and medicine.

Consumer Reports, a nonpartisan consumer advocacy group, urged the Mortgage Bankers Association in a letter Thursday to take steps to provide options to homeowners facing financial hardship.

The California-New York model is spreading as state governments have forced businesses to close their doors in an attempt to blunt the pandemic.

Delaware, Indiana, Kansas, Kentucky, and North Carolina all called for temporary halts on foreclosures and evictions, and Maryland Gov. Larry Hogan ordered landlords to drop all evictions for the duration of the state of emergency in the state. He also barred utilities from shutting off service or charging late fees.

The Federal Housing Finance Agency and the Federal Housing Administration last week announced forbearance — or delayed payment — programs for loans backed by Freddie Mac, Fannie Mae and in Ginnie Mae, which account for 60% of home loans.

Congress’ $2 trillion economic rescue bill for the coronavirus crisis, which is expected to reach President Trump’s desk as soon as Friday, codifies the six-month forbearance option for every federally-backed mortgage.

While homeowners get a reprieve, mortgage companies would still be on the hook for interest and principle when borrowers skip monthly payments.

The mortgage industry is pressing the Trump administration and Congress to set up a lending program worth billions to keep banks and mortgage services afloat.

“The unprecedented and unexpected wave of forbearance requests will place a significant strain on mortgage servicers. Even if a quarter of all borrowers request forbearance for six months or longer, cash demands on servicers could exceed $75 billion and could climb well above $100 billion,” said Mike Fratantoni, senior vice president and chief economist for the Mortgage Bankers Association.

“That is why it is absolutely critical for the Federal Reserve and U.S. Treasury to immediately establish a liquidity facility so that otherwise solvent mortgage servicers can borrow from the Fed to support these forbearance programs. This needed backstop for servicers will ultimately support homeowners during these challenging times,” he said.

The program in the economic rescue bill would allow homeowners an initial six-month forbearance of mortgage payments and a six-month extension if needed.

The legislation also freezes foreclosure proceedings on federally backed loans.

When announcing the mortgage reprieve in California, Mr. Newsom said millions of families can breathe a sigh of relief.

“These new financial protections will provide relief to California families and serve as a model for the rest of the nation. I thank each of the financial institutions that will provide this relief to millions of Californians who have been hurt financially from COVID-19,” he said.

The California Democrat worked with JPMorgan Chase, Wells Fargo, U.S. Bank, and Citigroup — along with hundreds of state-chartered financial institutions — to ensure Californians could request a grace period on payments if impacted by the COVID-19 pandemic.

Those banks are offering mortgage forbearance for 90 days to borrowers who qualify and late payments won’t be reported to creditors. Foreclosure sales and evictions have also been put on pause for 60 days in California. And for 90 days, late fees will be refunded or waived.

Bank of America said some of their customers can request a deferral of payments for home equity loans, according to multiple reports.

Days before California made its moves, Mr. Cuomo signed an order mandating businesses to decrease in-office workers by 75% to enforce work-at-home policies in New York, which has the most COVID-19 cases and fatalities.

In the same order, Mr. Cuomo said the Department of Financial Services directed New York state mortgage providers to provide relief to borrowers for three months.

Mortgage payments would be waived for financial hardships caused by the spread of the virus and mandated quarantines. Grace periods, waived late fees and postponing foreclosures were also included in his order.

Mr. Cuomo also instructed state banks to waive ATM fees and overdraft fees.

“We know there is going to be an economic impact across the state and we are taking new actions to support the thousands of New Yorkers and small businesses who are suffering. It’s going to be hard, it’s going to be disruptive, but we will get through this together,” he said.

On the federal level, Secretary of Housing and Urban Development Dr. Ben Carson said there will be a 60-day break for homeowners with mortgages through the FHA.

The Trump administration also pressed mortgage services to offer forbearance for any homeowner in financial distress.

“It is important, if you’re having difficulty, to actually contact the people who have made the loan, who established the mortgage because it doesn’t happen automatically,” said Mr. Carson.

“What we’re trying to do is bridge the gap, recognizing that it’s a lot easier for us to take these measures and for Congress to take the measures that they’re taking so that we don’t destroy a very excellent system and have to start all over again,” he said.