PPP, Forbearance, Evictions...We are all hearing so much information on these topics nowadays it could be mind blowing or you may be saying what is this and how can it help me. In either case I am providing you this information so that you can be better informed and do what you need to do to help yourself and your family.
PPP, is the Payroll Protection Program that was put in place by the federal government to assist small businesses during this time of the "stay at home" orders. The program has been out since March and has had a second showing in April due to the need in our country. The program basically states that, any small business, from single person company to a 500 employee company, can receive 2.5 times their monthly payroll expense as a loan. These loans if used to keep employees on payroll may be forgiven.
The government selected the SBA to manage this deployment with the directive to validate the need of the small business applicants. This validation of need was understood to be as simple as payroll records to signed affidavits from the company on its use.
However as Secretary Mnuchin’s April 28 announcement mentions, all recipients of PPP loans “for more than $2 million” will “face full audits, with spot checks for [those receiving] smaller amounts.”. Since this requirement was not disclosed as part of the initial program this announcement caused many issues, from capacity to execute, to law suits from applicants.
Yesterday, there has been a major change to this policy! The SBA has announced the following; “Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.”
While the SBA’s explanation for this sea change in policy is somewhat questionable (the SBA in effect says borrowers who received less than $2 million are “less likely” to have gamed the system), the news is welcome for those fortunate enough not to have already abandoned their loans.
So there we are with the PPP. If you have not applied, do so, there maybe money still available and if you use it for payroll it will be forgiven.
Forbearance is another topic that people need to know a lot about. Basically this program was put in place as part of the CARES Act to help homeowners deffer their mortgage payments. "The CARES Act provides that a Federally backed mortgage loan borrowers who have been (A) current on their payments as of February 1, 2020, and (B) who affirm they are experiencing financial hardship due to the COVID-19 emergency may request a forbearance from loan servicers."
The first point to consider is that the CARES Act allows for some borrowers to seek forbearance for as much as 180 days, with no impact to their credit. Most help will be available, but only to those who ask for it, and the place to ask for it, is with their loan servicer. To qualify for forbearance, borrowers must have loans backed by Fannie Mae, Freddie Mac, the Federal Housing Administration, VA or USDA. What was left vague was what happens with those payments after the period is over. Do you have to pay it all at once or what?
This is answered in the application process. Just take a look at what the questions are:
Do you need payment assistance? *Affirmative answer will make you eligible
Do you understand all unpaid monies are due in full at the end of the Forbearance? *Affirmative answer will make you eligible
That’s it! This easy qualification process could cause normal, not necessarily troubled borrowers, to take advantage of a perceived “break” in paying their mortgage only to be shocked when that 3-6 months of payments bill suddenly becomes due, therefore putting their home at risk of foreclosure at a time when equity in homes is at its largest. According to CoreLogic, borrower equity in their homes rose to an all-time high in 2019 and has more than doubled since the housing recovery started.
To minimize this risk The Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac (the Enterprises) are offering a new payment deferral option for homeowners in mortgage forbearance due to COVID-19 – the ability to repay missed payments at the time a home is sold, refinanced or at maturity. Mortgage servicers will begin offering the new payment deferral repayment options starting July 1, 2020.
This sounds like great news to the consumer right? It is BUT here is the second point to consider.
The second point is that it has been projected by Mike Fratantoni, chief economist at the Mortgage Bankers Association, that if one-quarter of U.S. homeowners — about 12.5 million households — seek forbearance for six months, servicers could still owe between $75 and $100 billion to investors. Reason for this, is that government agencies require the servicers to continue to make payments even if the borrower is not making payments. These servicers already plan on a certain percentage of their borrowers to go into default but not one-quarter of them.
Allowing the mortgage industry to destabilize due to this could trigger another huge cycle of foreclosures. Even though it wouldn’t echo what we saw in 2008, it could have a huge effect. Servicing companies, banks and lenders are looking for Congress to intervene quickly so they will not have to dip into reserves that are possibly insufficient to cover these payments over the long term.
Some would quickly fail, and if there is no one to collect mortgage payments and get the money to investors of mortgages, then the entire industry could fail. Investors would be holding the bag on worthless mortgage bonds. And most importantly to the real estate community, lenders would then not have the funds that they typically lend to new borrowers, therefore, at worst, crashing the whole housing system, and at best, a liquidity crunch.
Congress and the Federal Reserve now realize this, and hopefully, help is on the way. But until then, be smart about your need and do some research, call your lender, go online, and gather as much information as possible — it could just be your financial lifesaver.
Eviction part duo. Back in March, Fannie Mae, Freddie Mac and the Department of Housing and Urban Development suspended all foreclosures and evictions for 60 days to ensure that people didn’t lose their homes as the coronavirus was shutting down the U.S. economy. The agencies’ foreclosure and eviction freeze was set to end on May 17, 2020, but Thursday, each of those agencies announced that they are extending their suspensions of foreclosures and evictions through the end of June, at least. According to HUD, the freeze applies to single-family mortgages and reverse mortgages (HECMs) insured by the Federal Housing Administration. The freeze halts “all new foreclosure actions and suspends all foreclosure actions currently in process, excluding legally vacant or abandoned properties; and stops all evictions of people from FHA-backed single-family houses, excluding actions to evict occupants of legally vacant or abandoned properties. “We made it clear at the beginning of this pandemic that no American should have to worry about losing their home amidst a crisis,” HUD Secretary Ben Carson said in a statement. “Today’s announcement ensures that commitment,” Carson added. “While we have made great strides in fighting this virus, the fact remains that many Americans are still struggling as we work diligently to get our economy back on sound footing, which I have full confidence we will do through the leadership of the President.” According to the newly minted HUD deputy secretary Brian Montgomery, there are more than 8.1 million borrowers who have an FHA-backed mortgage. “Our highest priority is to ensure that they have the time through the foreclosure moratorium, and the assistance they need through special COVID-19 mortgage forbearance, to remain in their homes long-term,” Montgomery said of those more than 8 million people. According to the FHFA, the GSEs’ foreclosure and eviction suspension applies to single-family mortgages only. Fannie Mae and Freddie Mac have separate policies to keep renters in their homes. “Today, to help borrowers and renters who are at risk of losing their home due to the coronavirus national emergency, the Federal Housing Finance Agency announced that Fannie Mae and Freddie Mac are extending their moratorium on foreclosures and evictions until at least June 30, 2020,” the Federal Housing Finance Agency said in an announcement. According to a letter from Fannie Mae, servicers are not allowed to “initiate any judicial or non-judicial foreclosure process, move for a foreclosure judgment or order of sale, or execute a foreclosure sale,” except on properties that are vacant or abandoned. The extension of the foreclosure and eviction moratorium goes beyond the rules laid out in the CARES Act, which established a 60-day freeze on foreclosures and evictions beginning on March 18, 2020. “During this national health emergency, no one should be forced from their home,” FHFA Director Mark Calabria said. “Extending the foreclosure and eviction moratoriums protects homeowners and renters with an Enterprise-backed mortgage and provides certainty for families.”
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