The government-controlled companies that guarantee nearly half of US mortgages, could require their second bailout in just over a decade if the US economy remains in a lockdown for several months, their regulator has warned.
The two groups, which collectively underpin the $10tn US housing market, have sufficient resources to last through a lockdown of about 12 weeks, but would then need funds from Congress or the Federal Reserve, said Mark Calabria, director of the Federal Housing Finance Agency.
“If we start to go more than two or three months, then there is going to be real stress in the mortgage market, we’re talking in terms of what happened during the great recession,” he told the Financial Times.
“If we are talking about a drawn-out period where people are not in a position to pay their mortgages, if we are talking about 25 per cent of people having to ask for forbearance, the system doesn’t have that kind of liquidity. That would require Congress to step in, or the Fed.”
Mr Calabria’s warning underlines the potential consequences for the US economy if the current coronavirus-related shutdowns persist beyond summer, as many health experts warn.
About 300,000 borrowers had asked for forbearance on loans backed by Fannie and Freddie as of April 1, Mr Calabria said. Since the agencies make up more than 40 per cent of the mortgage market, he said that implied a total of perhaps 700,000 homeowners seeking forbearance.
He said that number was likely to rise: “A lot of people got paid for half of March, so a lot of people who were able to make their payments in March won’t be able to make their May payment.”
Below are some of the more common questions with answers that are being asked daily form homeowner’s seeking answers and or guidance…
Who Qualifies for Forbearances?
Anyone suffering financial hardship due to the COVID-19 crisis. Some servicers will take the borrower’s word / attestation, but many will request “proof” of some sort. Borrowers who are not in financial hardship should be careful about claiming they are.
How Do I Obtain a Forbearance?
Borrowers need to contact their servicer and apply for it. They should not simply stop making payments. Not everyone seeking a forbearance will qualify or be granted a forbearance
Do I Have to Pay Back Missed Payments?
Yes, servicers will want all of the missed payments repaid as soon as the forbearance ends; some will want to restructure entire loans; and some will want to set up repayment over a period of months. Servicers will most likely try to work out the repayment system when borrowers apply for forbearances.
Does It Matter What Type of Mortgage I Have?
Yes, forbearances will be easier to obtain for conforming (Fannie/Freddie), FHA and VA loans. Jumbo and non-QM borrowers, however, will have a more difficult time obtaining forbearances due to the government does not have as much influence over those entities.
How Will a Forbearance Affect My Credit?
If borrowers obtain a formal approval for a forbearance, it should not affect their credit. If borrowers just stop making payments, however, without getting an approval from their servicer, it will likely impact their credit. Although credit reports will not show late payments when borrowers get their forbearances approved, future lenders will be able to see if a borrower obtained a forbearance and that could affect credit decisions in the future.
Should I Go Through With My Purchase or Refinance If I Am Likely to Seek a Forbearance?
No, not only will it be extremely difficult for borrowers to obtain a formal forbearance approval for a recently funded loan, missing payments on newly funded loans put the originating lender in extreme financial situation which may cause you to have serious ramifications.
As we get further into this crisis and more and more changes occur in our economy and with our government policies, these changes will benefit some homeowners but not all.