What the CARES Act Means for Homeowners

Originally Posted on 3/30/2020

The media coverage of the CARES Act (or the Coronavirus Aid, Relief, and Economic Security Act as is its full name) has mainly focused on the fact that about 90% of all American households can expect a check in the mail shortly. However, in an attempt to avoid the flood of foreclosures caused by the burst of the housing bubble in the mid-2000s, the bill contains several protective measures for homeowners. The protective measures cover not just owners of single-family homes, but also owners of multi-family buildings, renters, and future homeowners.

Foreclosure Protection and Loan Forbearance for Owners of Single Family Homes

During a 60 day period starting March 18, 2020, servicers of any federally backed mortgage may not initiate foreclosure procedure. Furthermore, during the designated disaster period, which began on March 13, 2020, any borrower with a federally backed mortgage may request forbearance via the loan servicer. The borrower does not have to prove financial hardship, the only need to attest to the fact that they are suffering financial hardship due to COVID-19. Federally backed mortgages are mortgages guaranteed or insured by the FHA, the Department of Agriculture, Department of Veterans, or securitized or purchased by Freddie Mac or Fannie May.

Even if the Act doesn't cover your mortgage, you should still contact your lender if you find yourself in financial hardship. They may be willing to assist you in some way.

You Must Still Pay Your Taxes and Insurance

If you are paying taxes and insurance via an escrow account with your lender's servicer, you will be given forbearance on these payments as well. It is essential to be aware, though, that while your interest and principal payments will be "added" to your loan, you are required to make up for the missing escrow payments within 12 months.

Loan Forbearance for Owners of Multi-Family Homes

Owners of Multi-Family dwellings can also find relief under the CARES Act. All of the protections mentioned above extend to owners of multi-family residences, with a few modifications.

To get a forbearance on a mortgage on a multi-family home, the borrower must document the financial hardship. The forbearance will also only be for a period of up to 30 days. The borrower can request an extension for up to two periods of 30 days each.

It is worth noting that an owner of a multi-family building, who has been granted forbearance, may not evict any tenant in that building because of the non-payment of rent during the forbearance period. Neither may the owner charge any penalties or fees for non-payment of rent during that period.

Extended Tenant Protection

Owners of any property that is covered by many acts are prevented, for the next 120 days, from initiating any action aimed at evicting tenants for non-payment of rent or charge any penalties or fees for non-payment of rent. Some of the acts this applies to are National Housing Act, National Affordable Housing Act, the low-income housing tax credit program, Homeless Assistance Act.

This tenant protection extends to dwellings financed by a federally backed mortgage, including HUD financing.

Better Protection of Your Credit Score

The CARES Act amends the Fair Credit and Reporting Act to allow for more leniency toward borrowers who enter into agreements with their lenders on deferring debt, making partial payments, loan modifications, and even forbearance of a delinquent amount. The aim is to prevent millions of Americans from finding themselves with a low credit score through no fault of their own.

If a lender and a borrower agree on any of the above because they are affected by the COVID-19 pandemic, and the borrower makes the agreement payments, or if that was the agreement, no payment at all. Then the affected account must be reported as "current" to the credit reporting agencies. If the loan was delinquent before the period covered, the status of the account remains unchanged.