The Coronavirus Aid, Relief, and Economic Security (CARES) Act has made provision for American homeowners to get mortgage payments postponed, but it may not be in homeowners’ best interests to do so, according to a report by CNBC.
Among CARES’ relief measures is the ability for Americans with federally-backed mortgages to apply for a reprieve of up to 12 months. Some states have also worked with private lenders to offer homeowners a three-month reprieve on payments.
However, unlike SBA Payment Protection Program loans, the payments do not have a forgiveness clause. Rather the payments would be postponed and this could cause adverse effects in the long run.
“Lenders offer forbearance, which doesn’t alleviate the expectation of payment, but puts it off,” Barry Zigas, senior fellow at the Consumer Federation of America, told CNBC.
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To avoid making a decision that can ultimately lead to more harm than good, CNBC suggests homeowners ask these three questions:
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Homeowners can check to see if their mortgage loan is federally owned by Fannie Mae or Freddie Mac to determine eligibility. They may also check with their state to find out if its offering reprieves on payments.
It’s possible that payments could be due in a lump sum or extend the loan term; or the homeowners’ insurance and property taxes could be affected.
Richard Cordray is the former director of the Consumer Financial Protection Bureau. He, and two of his colleagues, sent a letter to current director Kathy Kraninger, asking the bureau to shield borrowers against being taken advantage of.
“New rules were put in place several years ago to address these problems, and the mortgage servicers cannot now be excused from complying with these rules when consumers need them the most,” Cordray wrote.