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American homeowners who are falling behind on their mortgage payments during the current economic crisis are looking for relief to the Coronavirus Aid, Relief and Economic Security (CARES) Act, which could temporarily suspend mortgage payments, foreclosures and evictions.
However, not all homeowners may be able to access these resources, and foreclosure rescue schemes may continue to plague certain populations, according to U.S. Government Accountability Office's WatchBlog, released Wednesday.
Moreover, prolonged distress in the housing market could have a serious negative effect on the housing finance system, it said.
The WatchBlog looked at relief efforts for homeowners under the economic rescue package, including how those efforts compare with federal actions during the 2008–'09 financial crisis. It also discussed potential challenges and risks homeowners could encounter when they seek assistance.
Help for Struggling Homeowners
Today, some 70% of homeowners have federally backed mortgages, including those that are insured by the federal government or are securitized by Fannie Mae and Freddie Mac. These homeowners are eligible for assistance under the CARES Act, according to the blog.
Homeowners who are uncertain whether their mortgage is federally backed can find out from their servicer.
The CARES Act offers those with federally backed mortgages several options:
- A 60-day moratorium on foreclosures as of March 18
- A temporary halt to foreclosure-related evictions during the same 60-day period
- If requested, six months of mortgage forbearance, with the option of extending it for an additional six months — a total of one year
The blog said that in the case of forbearance, servicers are prohibited from charging fees or interest beyond what the borrowers would have to pay if they were making regular payments.
The blog hastened to point out that "loan forbearance is not forgiveness."
It said that depending on the agreement with servicers, homeowners could be responsible for making a large lump-sum payment to cover the mortgage due at the end of the forbearance period. It said borrowers should ask about this when requesting forbearance.
GAO's blog warned that foreclosure rescue schemes, which emerged during the 2007–'11 housing crisis, remain an urgent concern for potentially vulnerable homeowners.
