In the fallout from the coronavirus, many people have seen reduced work hours, temporary furloughs or complete job loss while still having to provide for their families.
Mortgages are such a huge bite out of the typical budget and cover the basic human need for shelter, so it looms big for worried citizens.
A local banker has taken on our questions about how the Coronavirus Aid, Relief and Economic Security (CARES) Act – the $2.2 trillion stimulus package recently signed into law – can help.
Craig Esrael, president and CEO of First South Financial, also tackled questions about whether this is the right time to buy/sell a home or refinance an existing mortgage.
Does mortgage/rent relief happen automatically, or do people have to request it?
Esrael cited consumerfinance.gov as a source and said the CARES Act provides two protections for homeowners who have federally backed mortgages: A moratorium on foreclosures (temporarily forbidding foreclosures) and a right for “forbearance,” which means they could get a pause in their mortgage payments or a reduction in those payments for a limited time.
The act applies only to mortgage loans that are backed by the federal government (such as Fannie Mae or Freddie Mac).
“It does not happen automatically – borrowers must request this assistance,” Esrael said.
The act also does not currently provide any protections for renters, he said.
Are the payments forgiven entirely, postponed until after the virus emergency (and then paid back over a defined period, such as a year), or tacked onto the end of the mortgage period? What are the restrictions/requirements?
“The payments are not forgiven, they are just deferred and there are no additional fees, penalties or additional interest beyond what is already scheduled,” Esrael explained. “Again, borrowers with federally backed mortgages should reach out to their servicer for complete details including any questions regarding restrictions or requirements.”
Borrowers whose loans are not backed by the federal government should contact their servicer to see what options are available to them, he said. To get more information and to determine if their loan is federally backed, borrowers can use this site: www.consumerfinance.gov/about-us/blog/guide-coronavirus-mortgage-relief-options.
How and where can mortgage holders request this relief?
“Mortgage borrowers who have been negatively impacted by COVID-19 are encouraged to contact their mortgage servicer – the company to which they make their mortgage payments – to discuss their situation,” Esrael said. “Renters should contact their landlord directly for assistance.”
Have you received any such requests for relief, and are you granting it?
“We have received several requests from mortgage customers and are working with each one individually to craft a plan that best accommodates their unique situation,” Esrael said. “We are deeply aware of how this pandemic has disrupted the financial lives of our members and we’re doing all we can to assist them through this highly unusual situation.”
He continued, “We have received a good amount of calls from borrowers who have either had their hours severely reduced or eliminated, wanting to know what their options are for either skipping their loan payments or reworking their loans entirely. We are taking each request seriously and working diligently to help our borrowers as much as we can. We even have an emergency loan option available for those who might need a quick infusion of cash into their accounts to help cover expenses like rent, groceries, etc.”
Are you making many new loans during this period? What about refinancing student loans, car loans and mortgages?
“We are open and ready to serve consumers with any borrowing needs they may have,” he said. “The recent drop in mortgage interest rates did spark a surge in mortgage refinancing, which has only increased given that so many have been negatively impacted by the pandemic. The Fed’s drop in the Federal Funds Rate had driven auto loan rates lower, and again, combined with needs driven by the pandemic, has boosted demand for vehicle loan refinancing as well.”
As of Monday, the current Federal Funds Rate was set between 0.00% and 0.25%. Consumers can check the current Fed Funds Target Rate online at https://www.frbdiscountwindow.org.
How is that rate related to a 30-year interest rate, for example?
“Actually, it’s not,” Esrael said. “Changes to the Fed Funds Target Rate impacts short-term lending rates, but the Fed does not actually set mortgage rates. A 30-year fixed mortgage’s rate is based on long-term rates, like the 10-year treasury or other benchmark, so it has little to no impact on mortgage rates.”
He also noted, “Since the target rate has more impact on short term lending, it would have more of an impact on an Adjustable Rate Mortgage (ARM) than it does on other mortgage loan rates.”
Some financial analysts have called the Feds’ rate drop one of the most dramatic steps since the 2008 financial crisis to bolster the U.S. economy. Would you explain the significance?
“It is significant in the fact that the Fed is trying to do all it can to keep the U.S. economy moving forward with the tools it has at its disposal. However, in this time of shelter-at-home and social distancing, we feel that the Fed’s actions will be much more significant once the economy is ‘open for business.’ How they support the financial institutions, who in turn help support consumers and small businesses, will be a key part of getting the economy back on track.”
How low do you expect mortgage interest rates to go? Are they at historic lows?
“Mortgage interest rates are very low at this time,” Esrael said. “Given the unprecedented situation we find ourselves in, it would be difficult to speculate if they will go any lower than they are now.”
Do you expect mortgage rates to stay low for 2020?
Esrael said, “Given the current administration’s strong desire to get the economy ‘open for business’ as quickly as possible, that could definitely put pressure on lenders to keep rates low. If the rate indices that are used to set long-term mortgage interest rates stay low, then these near0historic rates could remain in place for the next several months.”
Is this a good time to buy or sell a vehicle or a home?
“The current economic conditions are very favorable for refinancing,” he said. “Buying or selling a vehicle or a home has some added complexities, given federal guidelines for social distancing and the many safer-at-home orders, but dealerships, Realtors and lenders are adapting to provide those in the market for a new home or vehicle with virtual and digital options.”
Because of the boom in refinancing and new mortgage applications, are you raising rates slightly to slow down and control the flow of requests?
“We have not raised our rates to slow the flow of requests; we want to help our members and ensure they are getting the best rate available in the marketplace, especially in light of this pandemic,” Esrael said. “It is one way we can leverage our financial strength and stability. And so far, we have been able to close loans as quickly and as efficiently as we did before the pandemic.”