What to do if you can't pay your mortgage

Angelica Leicht, mortgage researcher

Interest.com

For the last several months, unemployed Americans have been receiving an extra $600 a week as part of the CARES Acts. Known as Federal Pandemic Unemployment Compensation, or FPUC, this extra money, which was paid on top of state unemployment benefits, has been a lifeline for many people who are struggling to make ends meet while the economy is in turmoil due to the COVID-19 pandemic.

Recently, the Lost Wages Assistance Program was approved through Dec. 27, but more than 1 million Americans may still be disqualified for federal unemployment aid. With over 30 million unemployed Americans, many will still have to make do without the financial boost they desperately needed to pay for things like utilities, groceries and housing. That issue is compounded by the fact that federal foreclosure protections will also end soon, leaving questions about what homeowners should do when they can no longer afford to pay their mortgages.

What unemployment looks like with limited federal aid

About 30 million Americans were jobless as of July 24. That amounts to about 20 percent of American workers, most of whom are still struggling to find new employment.

And that’s just the number of Americans who lost full-time or part-time work due to the pandemic. The Pandemic Unemployment Assistance program is a temporary federal program that provides aid to freelancers, self-employed people and other workers who were not eligible for traditional unemployment benefits.

In total, tens of millions of Americans are relying, at least in part, on the supplemental federal aid provided to people whose jobs and livelihoods have been adversely affected by the pandemic. These Americans will now have to rely fully on state unemployment aid, which can vary wildly by state.

For example, the maximum unemployment payment per week is just $235 in Mississippi — but can be as much as $790 per week in Washington or as high as $1,220 in Massachusetts. Unemployment benefits that high are rare, though, and most states offer benefits in the range of $300 to $500 on average. In many cases, even the maximum payment isn’t enough to get by longterm.

Without the federal unemployment aid, unemployed workers in Mississippi would be living off of a maximum of $940 per month, which falls at or slightly above the federal poverty level for one person. Considering that the average household in Mississippi is comprised of 3.14 people, that puts any household surviving on just the maximum unemployment benefit of $940 per month at well below the federal poverty level.

Most unemployed Americans don’t qualify for the maximum unemployment benefits in their states, either. The average person received $378 a week in unemployment benefits in 2019, according to U.S. Labor Department data. To qualify for the maximum unemployment benefit in Mississippi, the person would have had to earn at least $780 in the highest quarter of their base period.

The loss of federal unemployment benefits in that situation could be devastating to most households across the nation.

What to do if you can’t pay your mortgage without the federal benefits

If you’re a homeowner who’s struggling to pay your mortgage now that the federal unemployment benefits program has ended, don’t panic. There are safety nets in place that could potentially keep you in your home. How you handle it — and what programs you can take advantage of — will depend heavily on the type of mortgage you have, along with a number of other factors.

If you’re unable to pay your mortgage without the federal unemployment benefits, you should:

1. Contact your lender

The first thing you should do — no matter what type of mortgage loan you have — is contact your lender. This is the same whether you have a conventional loan or a federally backed and GSE-backed mortgage. Most lenders do not want to foreclose on a property — not in the midst of a pandemic and not any other time. Many of them have specific programs or help for people facing financial hardships, and the only way you’ll know if yours does is by contacting them.

The sooner you contact them, the better. There are millions of people in the same position as you, so it may take a while to get the help you need. Reach out to your lender as soon as you know you’re not going to be able to pay your mortgage — and whatever you do, don’t ignore it. You have been at risk of foreclosure as soon as Aug. 31 rolled around unless something changes.

2. Apply for forbearance

If you have a government-backed loan and you haven’t already applied for forbearance, do it now. If you’re experiencing financial hardship due to the coronavirus pandemic, you have the right to request a forbearance for up to 180 days and obtain an extension for up to another 180 days. That gives you a year, in total, of potential mortgage forbearance. But again, you must contact your loan servicer to request a forbearance. You won’t have to submit additional documentation to qualify, other than your claim of a pandemic-related financial hardship.

While this forbearance program is only guaranteed for federally backed and GSE loans, you should still try to get a forbearance from your lender if you have a conventional loan. Many lenders and loan servicers are offering forbearance plans to homeowners who are affected by the pandemic, and you won’t know if your lender is one of them until you inquire about it.

It’s important to note, though, that while you may qualify for a year of mortgage forbearance under the protections, it won’t mean your payments are forgiven or erased. You will still be required to pay back any missed or reduced payments, though these repayments likely won’t be in a lump sum after the forbearance period has ended. In most cases, your missed or reduced payments can be paid back over time, but it will depend on the type of loan you have. You can find specific information about repayment terms for FHA, VA, USDA, HUD, Fannie Mae and Freddie Mac loans here.

3. Look into state or local assistance programs

The majority of the federal protections in place are for federally backed mortgages, but private lenders have still been encouraged to offer forbearance and other help to homeowners who are struggling with their mortgage payments.

Plus, there are other resources available to help, including some state-run programs that have been put in place for homeowners who aren’t covered under the federal protections. Look into these programs and see if you’re a potential fit — or just reach out to the program directly to get more information.

4. Look into a loan modification

A number of changes have been made to the rules for loan modifications and refinancing to help address the fallout from COVID-19. Freddie Mac and Fannie Mae are allowing lenders to offer some loan modifications that were restricted to victims of natural disasters to homeowners who can’t afford their housing payments due to the pandemic.

You can also look into a flex modification if you have a GSE-backed loan. A flex modification would allow your lender to change the original terms of your mortgage by extending your loan term, lowering your interest rate or even reducing the amount of your principal, which will lower your monthly payments. This option is only available for certain types of loans, though — and it isn’t available for homeowners with FHA, VA or USDA loans.

For more information or to find out about the programs you may be able to qualify for, people can visit the U.S. Consumer Financial Protection Bureau page at https://www.consumerfinance.gov/coronavirus/mortgage-and-housing-assistance/mortgage-relief-do-i-qualify online.

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Angelica Leicht is a writer and editor who specializes in everything mortgage-related for Interest.com. Her work has spanned topics that include lending product reviews, interest rate trends, racial biases in mortgage lending and the role of fintech in lending practices, and has appeared in publications such as Interest, The Simple Dollar, Bankrate, The Spruce, Houston Press and VeryWell, among others.

Online: https://www.interest.com .