American homeowners were given more opportunity to hit pause on their mortgage payments because of the financial ravages of the pandemic, but that relief is slowly coming to an end.
About 3 million people are behind on their mortgage, the most at any time since the Great Recession, according to the Consumer Financial Protection Bureau. About 2 million are in forbearance plans, which provide a reprieve of a year or longer from making payments.
Some people are beginning to exit these arrangements, but experts say the pace will soon pick up, with as many as 1.7 million borrowers exiting in September. Regulators have warned mortgage servicers to be prepared for the onslaught.
Those who are unable to resume payments or reach some other agreement with their lender may be forced to leave their homes through sale or foreclosure.
"We must not lose sight of the dangers so many consumers still face," CFPB Acting Director Dave Uejio said in a statement as the agency works to ease the process and protect homeowners. "Millions of families are at risk of losing their homes to foreclosure in the coming months, even as the country opens back up."
Experts say homeowners who are in forbearance should start making plans as soon as possible for their next steps — be that resuming payments as usual, tweaking the terms of their loan or leaving their home.
Here's what borrowers should know:
IF YOU CAN AFFORD PAYMENTS
Homeowners who received a COVID hardship forbearance are not required to repay their skipped payments in a lump sum once the forbearance period ends, the CFPB reminds borrowers.
Contact your mortgage servicer to discuss your options.
If you can resume your pre-pandemic payments, the process should be fairly smooth. Many federally backed loans have programs in place that will allow homeowners to resume payments as usual and tack those missed payments on to the end of the loan period, said Andrea Bopp, an attorney at the National Consumer Law Center who specializes in mortgage servicing issues.
Borrowers may also work with their servicer to find other arrangements, such as increasing the size of their regular payments to help make up their missed payments. In some cases, the servicer may create a separate account for the unpaid payments that would be settled upon the sale, transfer or refinancing of the loan.
The options vary by type of loan, there are several processes in place for borrowers with federally backed loans. However, there are no universal programs to help those with privately held loans ease out of forbearance; these represent about one-third of all mortgages.
All the same, servicers have been encouraged to be flexible to find arrangements that work for all borrowers. The CFPB has a wealth of information on its website to help borrowers sort out their options.
If you do not know who holds your loan, check your mortgage statement, call or write your servicers. The CFPB has information online for consumers on how to do this.
IF YOU CANNOT AFFORD PAYMENTS
If you have a federally backed loan and are nearing the end of your forbearance period you may request up to two additional three-month extensions — although the maximum forbearance period cannot exceed 18 months. This only applies to those who received their initial forbearance on or before February 28, 2021 for loans held by Fannie Mae or Freddie Mac or June 30, 2020 for HUD, FHA, USDA, or VA loans.
If you are struggling with payments, servicers are generally required to discuss relief options with you, whether or not your loan is federally backed.
It's important to reach out to your mortgage servicer as soon as possible to discuss your options. If you need help, talk with a free HUD-approved housing counselor; they can be found online. Or you can seek out legal help through Legal Aid or by reaching out to your state bar association.
The last resort is for a homeowner to leave their home through foreclosure.
In a foreclosure, the lender takes a property back after a borrower fails to make all the required payments. There is a foreclosure moratorium in place for all federally backed mortgages — those backed by Fannie Mae, Freddie Mac, FHA, USDA, or VA — until June 30, 2021.
However, borrowers may be able to avoid foreclosure if they seek help to make other arrangements, be that through their servicer directly or with the help of a housing counselor or lawyer.
Experts urge homeowners not to wait until the forbearance period is over or the foreclosure moratorium ends. Once the foreclosure process begins it is difficult to stop and foreclosures are expensive for homeowners, with an average cost to borrowers of $12,500.
In some cases, people with equity in their homes may be able to sell their home to avoid foreclosure, which has a not just a devastating financial but emotional and mental impact on families.
Not every deliquency leads to a foreclosure though, notes Odeta Kushi, deputy chief economist at First American. She said that rising equity and home prices may allow more borrowers to sell, causing more of a "foreclosure trickle than a tsunami" ahead.
All experts urge homeowners to reach out to their mortgage servicer as soon as possible to allow for adequate time to make an exit plan from forbearance.
"For people who are overwhelmed right now, it is important to connect with the servicer," Bopp said. "It can be difficult to sit on the phone ... or connect online. But if you wait too long it can be a snowball effect."