The COVID-19 pandemic has hit business owners and homeowners hard. People in many industries have been furloughed or even laid off, and self-employed individuals are seeing their businesses closing completely. To sugarcoat this reality would be a disservice to homeowners, business owners, and mortgage lenders alike. But, there is hope—if you’re struggling with paying your mortgage, due to the pandemic or for other reasons—you have options.
Let me lead with the bottom line: Doing nothing is always your worst option.
Instead, do whatever you can to pay your mortgage above all other payments. In times of trouble or not, you’re most liable for your mortgage and you need to prioritize that (and I’m not just saying that because we’re a mortgage lender). If you miss a car payment or a credit card payment (with a reasonable explanation), oftentimes creditors will overlook that because you’ve taken care of your most significant obligation, the mortgage. But if you make a late mortgage payment, that delinquency will have the most severe negative impact on your credit report and can make it very difficult for you to get a mortgage anytime in the near future.
The good news for the consumer is that the state and local federal governments including, Fannie Mae, Freddie Mac, and FHA, have instructed lenders to give homeowners deferments of their mortgage payments in instances where they’ve been adversely impacted by the COVID-19 pandemic. So, anybody who has been impacted has been granted between 3 and 6 months deferment, and with Fannie and Freddie, up to 12 months. It grants the ability to not make mortgage payments for that period of time.
The not-so-good news? It’s not a free lunch. You do ultimately have to pay back the payments that were deferred. Just because the payments were deferred, doesn’t mean they were forgiven. And there are a variety of different ways that lenders are requiring those deferred monies to be paid back. At Quontic, we deferred payments for 3 to 6 months. At the end of the deferment period, we’ll divide up that money (the deferred payments that we’ve essentially lent to our customers) over the next 12 months, and then they will have to add it to their regularly scheduled payment to pay it back in 12 installments on top of their initial payment.
So when you’re budgeting and you have some financial trouble to the extent that your lender has already helped you with a deferment, and now your mortgage payments are due again, focus primarily on that mortgage payment.
If making those payments proves impossible, you may still have options: Communicate with your lender about loan modification programs. Rather than not making the payment, it’s critical that you reach out to your lender or loan servicer and explain that the COVID impact, for you, is not over. See if they can’t work out a loan modification plan. Remember that the initial deferments are not considered modifications, they’re just deferments. Keep in mind, though, that your claim of financial distress must be real and must be adequately proven. Sadly, there are always a few who will seek to game their lender by claiming distress when they in fact have the ability to pay. This strategy typically doesn’t work out. So to the rest of you, just prove that you need help and you may just find that help.
Let’s rewind the clock and look at when this happened during the last credit crisis in 2010 and 2011. People couldn’t make their payments after the deferment period was up. In the end, a lot of the lenders said, “We’ll work with you to restructure your mortgage. We’ll lower your interest rate. We’ll take the deferred amount and add it to the end. We’ll extend the term. We’ll let you pay interest only.” They did whatever they needed to do so that homeowners and business owners could continue making payments in a way that might have been restricted, and therefore more affordable.
This is what I suspect will happen again as the coronavirus crisis starts to wind down, and people are left distressed in its wake. Most of our customers expressed they thought a 3-month deferment would be ok, although we offered 6. In light of this, we have been proactively reaching out to our customers because the last thing we want to do is report people as delinquent.
See, lenders don’t want you to be late—not because they want to get paid—but because our loan performance data goes to our credit quality, and our credit quality is monitored very closely by our regulators. For optic and regulatory compliance reasons, we are incentivized to work with our borrowers. If those borrowers have financial trouble, we’ll work with them but we’ll also give them tough love. If you don’t have any ability to make your mortgage payments, you’re going to go into default, interest is going to continue to accrue, and you’re going to end up losing your equity over time by way of accrued interest that you’re not paying. While it’s not ideal, that’s the point where we would encourage them to sell the home.
First and foremost, our goal, like most lenders, is to provide whatever relief we reasonably can. All you need to do is prioritize your mortgage payments, and reach out to us if you’re having trouble. We’ll do everything in our power to help.