60-day Moratorium Ordered by HUD on Foreclosures & Evictions for Homeowners Affected by Virus
Richard Fonfrias, J.D.
Chicago’s Financial Rescue & Bankruptcy Lawyer
Fonfrias Law Group, LLC
On Wednesday, March 18, 2020, Ben Carson, U.S. Department of Housing and Urban Development authorized the Federal Housing Administration to stop foreclosures and evictions for two months for owners of single-family homes who are not able to pay their FHA-backed mortgages amid the coronavirus pandemic.
Homeowners with loans backed by Fannie Mae and Freddie Mac will also be granted foreclosure relief, according to the Federal Housing Finance Agency, which regulates the companies. Fannie Mae and Freddie Mac back about half of the nation’s mortgages and have operated under government control since 2008-2009.
HUD told mortgage servicers to stop all new foreclosure actions and suspend those already in progress. Currently, there are 8.1 million active FHA loans though it’s not known how many families would have faced foreclosure caused by today’s economic crisis. According to HUD, 3.78% of FHA loans were delinquent for 90 days or more.
HUD is urging public housing authorities not to evict tenants who do not pay their rent on time and is working with Congress to give the agency the authority to prevent evictions in public housing programs. Several public housing authorities, including the New York City Housing Authority, the largest in the nation, have implemented moratoriums on the evictions.
Late payments on mortgages are still near record lows; however, a moratorium on foreclosures and evictions will help keep people in their homes, said Mark Calabria, director of the Federal Housing Finance Agency. Fewer than 200,000 homes backed by the FHFA are over 90 days delinquent and, depending on the state, the typical foreclosure can take over a year to complete.
Fannie Mae and Freddie Mac were ordered by FHFA to set up a forbearance program that allowed borrowers affected by the coronavirus to skip their house payments for as long as a year. These missed payments could be added to the end of their loan or repaid in a balloon payment. If you’ve been affected by the coronavirus, you should contact your mortgage service and apply for forbearance relief.
Both Fannie Mae and Freddie Mac play a key role in the housing market. They buy mortgages from lenders and then package them into securities and market them to investors. The government took control of both companies in 2008 as the housing market unraveled and the firms’ losses increased.
If the coronavirus turns into a broad-based economic disaster, it could test the infrastructure of the mortgage industry, more than a decade after bad loans caused the global financial crisis. Statistics show many borrowers now send their mortgage payments to nonbanks that don’t have as much money as traditional banks.
In fact, in the last five or six years, nonbanks have taken over. They have much less capital at their disposal. Some of those institutions may be stressed if they have to forbear payments for more than a month or two. The best option is to give individuals the ability to continue making their house payments, said Jaret Seiberg, an analyst with Cowen Washington Research Group. The government should focus on putting money into the hands of consumers through unemployment insurance or cash payments.
This is because mortgage forbearance could become too costly for the industry without government help. The problem is that we don’t see how servicers will have the liquidity needed to provide complete forbearance, Seiberg said.