Help is coming for some Americans, who are falling behind on their mortgage payments as a result of economic disruptions caused by the COVID-19 (coronavirus) pandemic.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law on March 27, could provide relief to homeowners by temporarily suspending mortgage payments, foreclosures, and evictions. However, some homeowners may not be able to access these resources, and foreclosure rescue schemes may continue to plague certain populations. Also, prolonged distress in the housing market could have serious negative consequences for the housing finance system.
In today’s WatchBlog, we look at relief efforts for homeowners under the CARES Act, including how they compare to federal actions during the last financial crisis. We also discuss some potential challenges and risks homeowners might face when seeking assistance.
Who is eligible for CARES Act mortgage assistance?
Homeowners who have federally backed mortgages are eligible for assistance under the CARES Act. Federally backed mortgages comprise about 70% of mortgages in the current housing market, and include loans that are insured by the federal government or are securitized by Fannie Mae and Freddie Mac.
Homeowners who are not sure if they have a federally backed mortgage can contact their servicer to find out.
How does the CARES Act aim to help struggling homeowners?
The CARES Act offers some options for homeowners struggling to make their mortgage payments. For example:
- Foreclosures: CARES offers a 60-day moratorium on foreclosures for federally backed mortgages, as of March 18, 2020.
- Evictions: CARES temporarily halts foreclosure-related evictions during the same 60-day time period.
- Forbearance: Homeowners may request 6 months of mortgage forbearance under CARES, with the option of extending it for an additional 6 months (total of 1 year). During this period, servicers are prohibited from charging fees or interest beyond what the borrower would have to pay if they were making regular payments. However, loan forbearance is not forgiveness. Depending on the agreement with servicers, homeowners could be responsible for making a large lump-sum payment to cover the mortgage due at the end of the forbearance period. Borrowers should ask about this when requesting forbearance.
How does today’s economic crisis compare with the Great Recession’s housing crisis?
In many ways, the economic crisis caused by COVID-19 is different from that seen during the Great Recession. While unemployment insurance claims may indicate that the unemployment rate will be higher than what was seen under the 2007-2011 crisis, market failures (such as the subprime lending problem) are not driving the current economic downturn.
However, some of the efforts to help struggling homeowners are similar. During the 2007-2011 housing crisis, Congress also approved measures to help homeowners who could not pay their mortgages. For example, Congress approved the Home Affordable Modification Program (HAMP), which allowed servicers to modify loans with lower interest rates as a way to mitigate foreclosures.
In our 2012 report, we found that under HAMP, nearly 1 million loans were modified, helping homeowners retain ownership and avoid foreclosure. However, an additional 1.9 million borrowers had their application for HAMP denied between 2009 and 2011. Some common reasons those loan modification applications were denied included insufficient documentation, borrower ineligibility, and mortgage ineligibility.
GAO found, among other things, that existing federal foreclosure mitigation efforts could be improved through better data collection and analysis of costs and benefits.
How do foreclosure rescue schemes target struggling homeowners?
Foreclosure rescue schemes, which emerged during the 2007-2011 housing crisis, remain an urgent concern for potentially vulnerable homeowners.
For example, mass joinder lawsuit schemes feature scammers—using lawyers or law firms—who promise the homeowner that they can force the lender to modify a loan through a lawsuit. These schemes require homeowners to pay fees to participate in lawsuits and may leave them in worse financial shape than before.
GAO’s 2013 report provides additional information on the dangers associated with foreclosure rescue schemes, federal efforts to combat them, and persistent challenges. To learn more, check out or 2014 blog.
How ready is the housing finance system for this crisis?
The federal government provides major support to the housing market by guaranteeing most mortgages and will play a key role in mitigating the effects of the crisis. However, federal housing agencies likely will face additional financial and operational burdens as a result. Ginnie Mae, for example, plans to provide support to mortgage servicers, but has long suffered from risk management and staffing-related challenges. Read GAO’s June 2019 blog post about the need for reform in the housing finance system.
Due to the federal government’s role in the mortgage market, fiscal exposure to losses in the market remains significant, especially during times of economic stress.