Your Simple Guide to Home Loan Forbearance Options in Arizona During a Pandemic

Complications surrounding the coronavirus pandemic have left millions of Americans unemployed and unable to make their housing payments. In response, President Trump signed the $2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act into law in late March with a provision to temporarily relieve struggling homeowners of their mortgage payments.

It is important to note that the provision only applies to federally-backed mortgages—mortgages sponsored by federal agencies or government-sponsored enterprises, such as the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), the Department of Housing and Urban Development, the Department of Veterans Affairs and the Department of Agriculture. Fannie Mae and Freddie Mac have provided lookup tools for any borrowers who are unsure if their loans are federally backed.

If you own a home and have been impacted by the economic repercussions of COVID-19, there may be options available to lend you a helping hand. Here is what you need to know about home loan forbearance options in Arizona during the pandemic.

What is Home Loan Forbearance?

Home loan forbearance under CARES is available to those experiencing financial hardship due to COVID-19. Mortgage forbearance is a temporary suspension of mortgage payments that can be granted by your lender under defined circumstances. This defers payment obligations under those federally backed mortgages for up to 180 days and halts any attempted initiation of foreclosure on a home.  While the borrower must resume payments at the end of the forbearance period, the borrower has the right to apply for another 180-day extension.

Under the applicable provisions, no additional fees, penalties, or interest beyond those applicable if the borrower made all payments on time may be applied to a mortgage that has met the forbearance requirements.  Similarly, late payments are not reported to the credit bureaus unless payments are not made after the forbearance period expires.

Fannie Mae and Freddie Mac have ordered lenders to work with borrowers on plans to maintain or reduce monthly payments as necessary.

Mortgage Modification

While a forbearance is a temporary solution that may be applicable if the homeowner anticipates a future change in financial circumstances for the better, homeowners can also request a mortgage modification.  A loan modification is a more permanent solution to financial difficulties presented by COVID-19, which permanently restructures the loan to lower the monthly payments for the remainder of the loan period. Your lender can modify your loan by lowering your interest rate, converting a variable interest rate to one that is fixed, extending the length of the loan or forbearing a portion of the principal.

Mortgage modification allows borrowers to skip monthly payments and then pay back on those skipped months over a period of time. However, modification does require documentation of financial hardship and inability to pay on your loan, and you must complete a trial period with the new monthly payment. It may also affect your credit score.

Requesting Forbearance or Modification

If you anticipate any difficulty continuing your regular mortgage payments, now is the time to reach out to your lender. The self-service lookup tools provided by Fannie Mae and Freddie Mac can help you determine if your mortgage is covered by the CARES Act. Alternatively, you can call either agency’s hotline. Your specific lender may also provide additional helpful information.

You will need to provide your name, address and last four digits of your social security number when you call. Please note, homeowners are being warned to prepare for lengthy waits. Customer service representatives have been overwhelmed with calls, and they are still learning how different mortgages should be handled.

How Forbearance Affects Your Credit

Home loan forbearance does not affect your credit score because the CARES Act specifically provides that late payments may not be reported to the credit bureaus unless further late payments are made after the forbearance period has passed. However, mortgage modification may affect your credit because your lender may have to look at your score in order to modify the terms of your loan. Both options also may require a waiting period until you can finance a large payment again.

What the Experts Recommend

Experts recommend that homeowners requesting home loan forbearance or mortgage modifications negotiate with their lenders and pay attention to all terms. For example, forbearance may require the borrower to pay the amount of all skipped payments as a lump sum at the end of the forbearance period. This could devastate many households, especially those that have lost income during this time. Instead, you can negotiate with your lender to increase your monthly payments at the end of the forbearance period to pay off your balance over time.

Home Loan Forbearance Options in Arizona

In addition to the federal programs and options listed above, Arizona has launched Save Our Home AZ (SOHAZ) to aid local homeowners in avoiding foreclosure by assisting with mortgage affordability. The program provides Principal Reduction Assistance, Monthly Mortgage Subsidy Assistance and Second Lien Elimination Assistance to qualified homeowners and lasts throughout the state of emergency.

Find An Experienced Arizona Mortgage Attorney

If you have received notice of a default on your mortgage or have a pending foreclosure, the property will be sold at auction if you do not take immediate steps to resolve the matter with your lender. Our firm can help you consider all your legal options and pursue assistance through the Save Our Home AZ (SOHAZ) program to avoid additional lawsuits or recovery efforts. There may even be options to renegotiate some terms of your loan so you can stay in your home or pursue adequate foreclosure defense. Contact us today at 602-562-7218 to schedule an initial consultation or make an appointment online.