Mortgage Payments and Coronavirus

Before you call your mortgage company to find out what they can, or will, do to help you through this current mess we all find ourselves in, there are a couple of things you should know.

First, your mortgage company is going to have lots of options, and the first person you talk to may – or may not – know all of them.

Second, what your mortgage company can do for you will depend in large part on one thing — do they own your mortgage or are they merely the servicer.  You probably have no idea, but it doesn’t hurt to ask when you call.  If you write your mortgage check to Bank of America, they may actually own your loan — which is kind of what you expect.  On the other hand, your loan might be owned by a securitized trust that hires Bank of America to accept and process payments, make sure the taxes and insurance get paid that sort of thing, i.e., service the loan.  If your mortgage company is just the servicer and not actually the owner (or holder) of your note and mortgage, what they can do for you will be determined by their contract with the actual owner (sometimes referred to as the investors, although, that is not technically accurate).

Third, if your mortgage loan is insured by a U.S. Government program, that will also control, at least in part, what options your mortgage lender has.  That means that if you have an FHA insured loan or a VA insured loan or Fannie or Freddie, you can expect there to be regulations from FHA or VA or Fannie or Freddie or USDA Rural housing or whomever that will tell your mortgage company what they can and can’t do and what they should and shouldn’t do.

I know it is confusing, but knowing enough to ask your servicer for specifics can take some of the frustration out of the process.  You may read a news article about things that your mortgage company says it will do for home owners, only to call and be told that what you read in the news doesn’t apply to you.  Ask why it doesn’t apply to you, and then make sure it is right.  Mortgage companies really do make mistakes — often.

The next thing you need to know is to ask follow up questions.  You call your mortgage company, you are out of work until your employer reopens, what can they do for you.   They say they can agree to a 3 month deferment on your mortgage payments.  No payment necessary for three whole months!  Not so fast.  Your next question should be — and then what?  What happens to those three missing mortgage payments?  I can promise you that they won’t just go away.  There are a number of possibilities (including the one that I’m not thinking of, so please don’t assume this is a complete list).

One answer to this that I am already hearing is that after the three month deferment the missing mortgage payments are all due at once — along with the next month’s payment too.  So, the mortgage company won’t expect you to make payments for three months, but it will then expect you to bring those missing payments current at the end of the deferment period.  That is probably not a great option.

Another answer is that the missing payments will be added to the end of your mortgage loan.   That is a better option, but it is also not a great option.  Here is why.  Let’s say that your mortgage payment is $1000 a month on a 30-year-loan (360 months) with interest at 6%, and you are in month 99 (almost through with year 9).  Those three mortgage payments will defer to the end — with interest accruing for the next 21 years.  Now, I was an English major, and someone else should always check my math; but according to my calculations that means when you complete the 30 years of your original mortgage term, you will still owe over $10,000 — all because of those three missed payments.  So, if you are going to do this put yourself on a schedule to pay extra every month.  Then, at least once a year check your payoff against an amortization schedule to make sure you are getting those missing payments paid before the interest gets out of hand.  Oh, also ask how the escrow payments (taxes and insurance) will be handled.  If the lender advances the escrow portion of those payments you could wind up with a significant payment increase in the next year after your next escrow account analysis.

The next option is that you may be eligible for a loan modification at the end of the three months.  If you are, certainly apply for whatever you are eligible for.  Again, I will caution you to read the terms of the proposed modification carefully.  Historically, principal reductions have been rare on mortgage mods.

Probably the best option is for the mortgage company to put you on a schedule after the deferment period to cure the missed payments over a reasonable period of time.  If you can get it done in no more than a year, that is probably your best option.

Ultimately, however, if you and your mortgage lender can’t come to an agreement that you think is in your best interests, you might want to consider what a chapter 13 bankruptcy can do for you.  Chapter 13 is designed to give home owners an affordable means to cure a an arrearage or default on their mortgage.  In a chapter 13 you can take up to 5 years to cure a default, and deal with whatever other debt you have accrued along the way as well.

Elaine

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