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1.3 Million Homeowners Dread Foreclosure. Are Their Worries Justified?

During the COVID-19 pandemic, the United States Congress approved the Coronavirus Aid, Relief, and Economic Security (CARES) Act that allows affected homeowners to skip or delay their payments up to a year. In a recent Census Bureau Household Pulse Survey, 1.3 million homeowners stated that “it is somewhat likely” they will have to leave their current living arrangement in the next two months. The survey ended on August 31. There is a big gap in what the CARES Act promises versus what home lenders provide to their borrowers. Borrowers might have a right to worry if their lenders expect payment as soon as the CARES Act is expired.

CARES Act

The CARES Act was put in place to help people keep their homes in the middle of a pandemic that affects citizens’ financial security. Most Americans, around 70 percent, live paycheck-to-paycheck, so any interruption in their employment or other income significantly affects their ability to pay their bills. According to the CARES Act allows borrowers who have government-backed mortgages to put their home in forbearance for up to 180 days, with the option of extending it for an additional 180 days. Over half of all homeowners have a government-backed mortgage.

The CARES Act’s other main point is that government-backed mortgages may not foreclose on the homeowners until at least December 31, 2020. Those lenders who hold the liens on FHA, VA, or USDA homes are not permitted to begin any judicial or non-judicial foreclosure against homeowners or finalize a foreclosure or sale. The CARES Act protection started on March 18 and runs through December 31, 2020.

What Homeowners are Experiencing

During the pandemic, homeowners are often unaware of any payment help they could receive from their lenders. Regularly lenders have not made this information readily available. We know that 3.4 million homeowners are temporarily skipping their mortgage, according to NPR News. However, borrowers are being told by lenders that they can miss their monthly payments, but they will pay a balloon payment after their forbearance is expired.

Therefore, in a few months, we may be experiencing many homeowners who are facing paying four months of mortgage payments at once. Most borrowers would be unable to handle this upcoming bill because the reason they are in forbearance is due to financial hardship. This money is not going to appear suddenly.

Some borrowers are looking everywhere for funds, including drawing funds from their retirement or 401(k) options. Drawing from retirement, while it is a temporary solution, creates a tax bill at a high rate and jeopardizes their future retirement plans.

Forward Thinking

As we wait for the pandemic to wane or the government to outline their laws more, we can educate ourselves more on the available options to provide relief.

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