New regulations related to Covid-19 are putting foreclosures on hold
Under normal circumstances, the number of mortgage payments you could miss before the foreclosure process begins is 4, but this also depends on many factors, including your lender’s specific policies and the housing market.
However, during the coronavirus pandemic, the federal government has protected mortgages insured by the Federal Housing Administration ( FHA corporations ) or backed by Fannie Mae or Freddie Mac against 60-day foreclosures.
KEY TAKEAWAYS
- While the number of missed mortgage payments that will result in foreclosure may vary, typically a foreclosure will begin after four missed payments.
- Foreclosures have been temporarily suspended for up to 60 days during the coronavirus pandemic.
- If you’re having trouble paying your mortgage, the most important thing you can do is maintain open communication with your lender.
Your lender policy
Your specific lender’s practices and policies will affect how long you can fail to pay before being forced into foreclosure. If your lender has a large portfolio of low-risk loans, it may be more lenient on delinquencies and may also offer allowances to individual borrowers. Typically, such lenders will forgive occasional missed payments and may not submit your case to the Housing Authority until you continue to miss more payments.
However, if a lender has a high-risk loan portfolio, it is possible to initiate foreclosure proceedings even after two overdue payments. Even if you are a low-risk borrower, the program may trigger default risk due to the overall risk of the lender’s pool of mortgage-owned loans.
Mortgage discrimination is illegal. If you feel you have been discriminated against based on race, religion, gender, marital status, use of public assistance, national origin, disability, or age, you can take the following steps. One of those steps is to file a report with the Consumer Financial Protection Bureau or the U.S. Department of Housing and Urban Development (HUD).
Property market factors
The general condition of the local housing market is another factor that affects the timing of the foreclosure process. If there are many foreclosures in the neighborhood or area, you’ll likely be able to stay at home longer because local housing authorities and courts may have a backlog of homes and lack the resources to handle so many cases at once. In this case, there have been cases where people missed their monthly payments 10 or more times and ended up losing their homes.
If you default, your mortgage servicer should contact you several times to try to mitigate the situation. Typically, the lender will contact you by phone on the 36th day after your last payment. Within 45 days of your missed payment, your mortgage servicer must contact you in writing with information about the options available to you.3
While most lenders and servicers will not begin the foreclosure process with a single missed payment, missing even one mortgage payment will put you in breach of your mortgage agreement. That’s why it’s so important to communicate with your lender if you’re going to pay late or miss a payment.
Typical Mortgage Foreclosure Timeline
While circumstances and locations can dictate differences in foreclosure timelines, typically, there is a template:
- There is usually a 15-day grace period. If you pay within this period, you’re good to go. Things get more complicated if you don’t make a payment and then miss another payment. Late fees can increase, and your lender may report your credit bureau, which will hurt your credit score.
- Once you miss the second payment, you are in default. If you miss your second mortgage payment, you’re likely to see a change in mortgage service. It usually becomes more confident in the way it handles you. This can be a scary situation to deal with, but you can still reach an agreement with the lender. Whatever the circumstances that led to the delinquency on your home loan, you should keep in mind that, if possible, the home loan company wants to get the money without the messy foreclosure process; it’s better for them. This means that, if possible, they want to arrange payment with you.
- At 90 days, if you haven’t reached an agreement with your mortgage lender, you’ve missed three mortgage payments, which is a serious situation. You will receive a letter from the mortgage lender stating that you have 30 days to renew your account. If you want to stay at home, you’ll need to talk to your lender to try and avoid foreclosure proceedings. They will usually ask for the full amount owed, but you may still be able to agree to pay.4
- Once the 30 days are up, the foreclosure begins if no payment is made and an agreement is reached. You’ve missed four months of mortgage payments so far.4
Foreclosure laws vary from state to state. In some states, mortgage lenders must meet with borrowers before they can file for foreclosure.
COVID-19 Terms
Under the federal government’s new guidelines, all new foreclosures will be halted and ongoing foreclosures will suspend FHA-insured mortgages. 2 Foreclosures and evictions on mortgages backed by Fannie Mae and Freddie Mac, which account for about two-thirds of all mortgages in the U.S., are now suspended until at least March 2021, thanks to an executive order signed by President Biden on his first day in office 31st.5
Homeowners impacted by the coronavirus crisis can request mortgage deferrals that can lower or suspend their payments for up to a year. In addition, during this time, no penalties or late fees will apply, and lenders will not report delinquent payments under the deferral program to the credit bureau.6 7
Bottom line
If you’re facing foreclosure, your best bet is to stay in communication with your lender and talk to them about your situation. They may have plans to help you keep your home, especially if you are financially impacted by COVID-19.
