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Coronavirus & Your Mortgage

It’s obvious that COVID-19 is having (and will continue to have) a significant impact on our economy—including on the real estate market. Find out more…

The Federal Reserve cut interest rates to essentially zero in mid-March—and an article by businessinsider.com reports that more than half of economists believe rates will stay near zero for at least three years. Another 22% of economists don’t expect to see rate increases until 2022. There are even rumors of it dropping below zero.

At the same time, millions of Americans have lost their jobs, and even more layoffs will come. White House economic advisor Kevin Hassett warned the unemployment rate could reach 16% or higher.

“We see an unemployment rate that approaches rates we saw during the Great Depression,” Hassett said. (The unemployment rate peaked at about 25% during the Great Depression.)

He continued, “During the Great Recession we lost 8.7 million jobs in the whole thing. Now we’re losing that many every 10 days.”

These factors are obviously impacting existing homeowners—and will continue to impact anyone looking to purchase property in the next few months and years.

The U.S. government’s Coronavirus Aid, Relief, and Economic Security (CARES) Act included direction for government-sponsored agencies such as Fannie Mae and Freddie Mac to offer forbearance agreements for homeowners in need. Many other financial institutions have followed suit with forbearance and/or deferment options. Typically, at the end of a forbearance period, the amount of payments missed are due in a lump sum. Deferment typically allows borrowers to repay the money over time or add it to the end of their loan period.

However, the Federal Housing Finance Agency (FHFA) stated that borrowers in forbearance with a Fannie Mae or Freddie Mac mortgage are not required to repay the missed payments in one lump sum.

“During this national health emergency, no one should be worried about losing their home,” said Director Mark Calabria. “No lump sum is required at the end of a borrower’s forbearance plan for Enterprise-backed mortgages. While today’s statement only covers Fannie Mae and Freddie Mac mortgages, I encourage all mortgage lenders to adopt a similar approach.”

Additionally, Brandon Caldwell, a Loan Officer with Pinnacle Financial Partners, explains that typically a forbearance or deferment will affect a homeowner’s credit rating. However, most lenders are currently suspending reporting to credit bureaus for a time due to the COVID-19 emergency. Homeowners who can pay their mortgage should, but those struggling to keep up with payments should contact their mortgage servicer to request assistance under the new CARES Act.

Sources: https://markets.businessinsider.com/news/stocks/federal-reserve-monetary-policy-interest-rates-near-zero-2023-survey-2020-4-1029127099, https://www.cnbc.com/2020/04/26/coronavirus-hassett-says-unemployment-will-approach-great-depression.html, https://www.fhfa.gov/Media/PublicAffairs/Pages/No-Lump-Sum-Required-at-the-End-of-Forbearance-says-FHFAs-Calabria.aspx

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