60-Day Foreclosure Moratorium: What To Know

If you’re struggling to keep your head above water because of COVID-19, you can breathe a sigh of relief. The federal government issued a foreclosure moratorium in March 2020 to help everyone affected by COVID-19.

HUD Secretary Ben Carson will oversee the new mortgage moratorium calling for the halting of all foreclosure actions. Take a look at this guide to understand how the foreclosure moratorium can help you.

What is HUD?

HUD, or the Department of Housing and Urban Development, is the federal housing administration that manages FHA, Freddie Mac, and Fannie Mae loans. Freddie Mac and Fannie Mae back around half of all the mortgages in the U.S.

HUD loans are covered by the mortgage moratorium for up to 90 days as long as homeowners meet certain criteria. HUD mortgage requirements include:

  • Living in an area that’s been determined a disaster area by the President
  • Someone in your household died, is injured or missing because of the disaster
  • You can’t pay your mortgage loan because of the disaster

If you have a HUD mortgage, you have to let your lender know right away that you qualify for disaster relief. The lender can choose to waive late fees and other penalties that usually come with overdue payments on HUD loans. 

What is a Foreclosure Moratorium?

With the rapid spread of COVID-19, non-essential businesses all around the country shut their doors to customers and employees. Some companies are deciding to furlough employees until after the national lockdown is over. 

Macy’s, Kohl’s, and the Gap were among these companies that will furlough the majority of its workforce. Macy’s employs around 125,000 people who now have no guaranteed source of income. 

A mortgage moratorium is a law that allows debt payments to be delayed. Mortgage moratoriums often kick in after a disaster happens that leaves homeowners scrambling to get their lives back on track. 

The federal government can issue a foreclosure moratorium for a variety of reasons, but disaster relief is the most common. The outbreak forced millions of Americans to lose income causing the President to declare a national emergency.

With COVID-19 hitting major cities like New York where most people rent, everyone is looking for ways to offer financial relief. From Wall Street to state governments, lenders are coming to the aid of homeowners with flexible mortgage moratoriums.

For example, Ally Bank is giving borrowers up to a 120-day mortgage payment moratorium. Bank of America is going to suspend mortgage payments for eligible borrowers but the exact time frame hasn’t been announced.

In March 2020, all federal housing agencies announced a freeze on foreclosure actions for at least 60 days. These agencies include the Federal Housing Finance Agency (FHFA), Housing and Urban Development (HUD), United States Department of Agriculture (USDA), Fannie Mae and Freddie Mac.

The HUD mortgage moratorium will help idled employees find ways to cope with the sudden loss of income by offering new repayment options. Every single family might expect a mortgage moratorium option that works for their financial needs.

If you’re already in foreclosure, the options you have are different than homeowners who aren’t late on their mortgages yet. 

60-day Mortgage Moratorium

What are the details of the 60-day mortgage moratorium? Here’s an overview of what you should expect based on your situation. 

Foreclosure

Once your mortgage loan falls a certain number of months behind, the lender begins the foreclosure process. Homeowners usually have options to keep their homes up until the property is sold at auction. 

President Trump called for an immediate suspension of foreclosure actions against homeowners in March 2020. If you’re facing foreclosure, this means more time to decide on a foreclosure avoidance option.

Don’t avoid your foreclosure situation for the next 60 days just because a moratorium is in place. Contact your lender to discuss your income expectations following the spread of COVID-19 

Lenders want to help you avoid foreclosure. Taking back homes after foreclosure creates a financial burden for lenders who usually have to sell the home at a loss. 

Use the next 60 days to negotiate new options with your lender while you make a plan for financial recovery.

Renters

Renters falling behind on their monthly payments creates a snowball effect. Late payments burden landlords who fall behind on payments to mortgage lenders

The 60-day moratorium includes pausing evictions so renters and landlords have time to get their finances in order. Local sheriffs won’t enforce evictions that were issued before the moratorium to prevent residents and landlords from losing their apartments or buildings.

Forbearance

If you find yourself idle, contact your lender to discuss the options available to avoid foreclosure. One common option is forbearance. 

Forbearance means you don’t have to make any payments on your mortgage loan for a fixed period. At the end of the forbearance period, you either have to pay back all your missed payments at once or the lender creates a new repayment plan.

Homeowners usually have options when it comes to how the loan gets repaid. While the loan is in forbearance, interest still accrues on the loan.

You might opt to pay only the interest on your loan to help keep your future payments more manageable. Most homeowners without income won’t be able to pay back all missed payments in one lump sum.

Lenders will have to come up with a repayment plan that either extends the length of the mortgage term or increases the amount of monthly mortgage payments.  The benefit of extending the length of the mortgage term is that it can help you keep your monthly payments more manageable.

If lenders increase the amount of your mortgage payment to account for the months you missed, you can end up with unaffordable payments. Unfortunately, there aren’t any options not to repay the past due balance at all.

Do You Need a Moratorium?

Not everyone in these trying times should pursue a mortgage moratorium. There are pros and cons to pausing your mortgage payments.

On the positive side, you can take time to create a financial recovery plan for your family without worrying about how to make ends meet. Your money can go toward stocking up on food and supplies that keep you away from virus exposure.

But the money will come due at some point. If your lender isn’t flexible about repayment options, this could mean a financial burden down the road in the form of unaffordable mortgage payments.

Weigh your options to make sure you are getting a true benefit from the mortgage moratorium. For more personal finance updates, check out our help center!

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