The CARES Act is a law now. 

In place of a series of whack-a-mole moves, the administration has come up with the Mjolnir this soon in the battle. Instant aggression! Good approach! 

To prevent the Coronavirus pandemic genie from coming out of the bottle, the $2 trillion stimulus bill from the government sounds like a plan. The big headline for the home mortgage industry is the loan forbearance plan made available to the borrowers on all the government-backed mortgages. By uttering nearly as little as I CAN’T PAY, borrowers can forgo mortgage payments for up to a year. For the record, the unpaid amount will be added to the tail-end of the loan tenure. 

The amount of the reduction would be spread out over 12 months and added to your mortgage payment once the reduction period is over. This means your monthly mortgage will increase during that one-year period.

Little validation required to enroll in the forbearance plan

Superb arrangement for the borrowers, anyone can reckon. Begs the question though- If “I can’t pay” is all the validation required, won’t it lead to many false claims? The sentiment is echoed by Joshua Rosner, Managing Director at a research consultancy, Graham Fishing & Co., “The Act does not require any proof be furnished, and in fact, prohibits mortgage servicers from asking for any proof of such economic hardship.”

The FHFA Director, Mark Calabria, however, feels that the whole idea of the forbearance plan will be betrayed if lengthy processes of documentation and verification are brought into the mix. True that the verification protocols can negate false claims but it can also delay assistance to those who are suffering from economic hardships. Those who need immediate rescue!

The plan works on an honor system

According to Mr. Calabria, the plan operates on an honor system. He says, “This is supposed to be limited to if you’ve lost your job, you’ve lost income. Please, if you haven’t lost your job, continue paying. If you can pay your mortgage please do so because we really need to focus on the people who can’t.”

For those who have their sights set on abusing the plan, the news is that there will certainly be some accountability in the further stages; some kind of document-seeking when the borrowers get their repayment plans set up. 

We are all dressed up in fur coats you see, it may not be wise to rub the government the wrong way. Moreover, those playing it unfairly will have a short revelry. The law is likely to bring them to book with double harshness once the Corona dust settles. 

For the moment, the novel Coronavirus is throwing as much dust as it can, seeing what sticks. Unfortunately, it is a cloud of pretty sticky dust. 

Is the mortgage industry equipped to tide over the impact of Covid-19?

Among the many aftermaths of Covid-19, how about this: the 9% 90+ days delinquencies that the 2008 crisis reached during its peak will be surpassed in only 6 months now. It is a relief that the housing market is not as stretched as 2008. Homeowners, currently, have sizable equity and this means that the 2008 norm of people owing more than their home’s worth won’t be the case this time around. It is a different scene for the hospitality industry, though, where borrowers who copped a hotel or a casino with a ‘smallish’ down payment may end up finding their petty equity a weighty problem.

We aren’t looking at anywhere close to the numbers of foreclosures we had in 2009; chiefly because of the equity, high home prices, and the generally healthy state of real estate leading up to the crisis. But all of this is good mathematics only if the crisis abates in 4 to 6 months. If it’s in for a long haul (and who can second-guess how the virus mutates?), all mathematics will be thrashed and we will be left skinny-dipping in freezing-cold waters. 

Where to seek help

For help in exploring your options, reach out to a housing counselor. Use the CFPB’s “Find a Counselor” tool to get a list of counseling agencies approved by the Department of Housing and Urban Development (HUD). You can also call the HOPE™ Hotline, open 24 hours a day, seven days a week, at (888) 995-HOPE (4673). 

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