For those who have fallen behind on their mortgage payments as a result of the coronavirus pandemic, the CARES Act passed by Congress in March 2020 may offer you protection.  The protections and scope of this law are explained below:

What mortgages are covered under the CARES Act?

In order to be covered under this law, the mortgage must be a “federally-backed” mortgage, and the property to which the mortgage relates must be a residential property designed primarily for the occupancy by 1 to 4 families.

A federally-backed mortgage includes any loan issued, guaranteed, or insured by a federal agency, including the following:

  • Department of Housing and Urban Development
  • Department of Agriculture
  • Federal Housing Administration
  • Department of Veterans Affairs
  • Fannie Mae
  • Freddie Mac

Many mortgages issued or held by major financial institutions are insured or guaranteed by Fannie Mae or Freddie Mac.  You can check online whether your mortgage is backed by Fannie Mae or Freddie Mac.

What protections against foreclosure does the CARES Act provide?

The law does two things.  First, it imposes a foreclosure moratorium for 60 days from March 18, 2020—that is, it prevents the mortgage companies and lenders from taking any action to foreclose on a covered property until May 17, 2020. 

Second, the law allows a borrower experiencing financial problems due to the COVID-19 pandemic to request a forbearance of the mortgage payments for up to 360 days (180 day initial period and 180 day extension period).  A forbearance is essentially a postponement of payments.

In order to obtain a forbearance, the borrower (the homeowner) must submit a request to the “servicer” of the mortgage, which is generally the company that sends out the mortgage statements and to which mortgage payments are made.  The borrower must also affirm that s/he is experiencing a financial hardship due to the COVID-19 emergency.  The servicer is not allowed to request any additional documentation of the financial hardship.  The servicer (the mortgage company) must then provide a forbearance on the mortgage payments of up to 180 days.  In addition, if the borrower requests an extension, the servicer must provide an extension of the forbearance for up to an additional 180 days.

The mortgage company cannot charge any additional fees, penalties, or interest for the forbearance.  In fact, the interest on the mortgage has to be calculated as if the borrower made all mortgage payments on time and in full.

What to do if your mortgage is not covered under the CARES Act

If your mortgage is not covered under the CARES Act, and you are unable to make payments as a result of the coronavirus pandemic, there are still options available.  First, you should contact your lender.  Many lenders are offering their own forbearance and mortgage modification options, even if they are not mandated to do so under federal law.  If your lender does not offer such options, or if the available options do not work for you, then Chapter 13 bankruptcy may allow you to restructure your finances and catch up on the missed mortgage payments over a period of several years.  Utilizing appropriate debt management strategies may also help you manage the financial burdens created by COVID-19.