What Does the CARES Act Mortgage Forbearance Program Mean for Real Estate Investors?
According to the latest reports, nearly 4 million (or 8.5 percent) of homeowners nationwide have taken advantage of the CARES Act Mortgage Forbearance program. The forbearance program is a part of the CARES Act passed by Congress and signed by the President back in March 2020. In addition to providing a stimulus package, the program also granted relief for homeowners behind on mortgage payments who face foreclosure or bankruptcy as a result.
The COVID-19 mortgage forbearance act creates opportunities for real estate investors to purchase properties at lower prices while helping homeowners avoid foreclosure. Since the program ends on December 31, 2020, many homeowners will be back in the same situation they were in prior to the forbearance program.
As the economy continues to plummet due to the pandemic, many people are still without income, making it impossible to catch up on their mortgage payments. Investors can play a key role in assisting homeowners looking to sell their house fast.
Learn More About Mortgage Forbearance?
A mortgage forbearance agreement is an agreement made between a mortgage lender and a borrower that is delinquent in their mortgage payments. In this type of payment agreement, a lender agrees not to move forward with a foreclose on the mortgage if the borrower agrees to a mortgage plan that will bring the borrower current on their payments.
A forbearance can last anywhere from one month to half a year, depending on the homeowner’s situation and the lender’s forbearance policy. The lender agrees to reduce or even suspend mortgage payments for a certain period. They also agree not to initiate a foreclosure during the forbearance period. However, once the mortgage period ends, the lender may begin the foreclosure process if the borrower does not continue payments according to the agreement.
What is the CARES Act Mortgage Forbearance Program?
The CARES Act Mortgage Forbearance program is designed to deal with the economic decline that has occurred as a result of the COVID-19 pandemic. As such, the current program differs from a normal forbearance program in the following ways:
- The program is available for government-backed mortgages only.
- The program is mandated for all lenders.
- The initial forbearance period is 180 days, with the possibility for a 180-day extension.
- All foreclosures are prohibited until December 31, 2020.
- There are several payment options available to homeowners once forbearance ends.
- Homeowners do not have to provide proof of hardship.
Home loans that qualify for instant forbearance include Fannie Mae, Freddie Mac, VA, USDA, and FHA mortgages. While private lenders may provide their own forbearance programs, private loans do not qualify for the program.
What Happens When the CARES Act Mortgage Forbearance Period Ends?
While six to 12 months may seem like a long time, a forbearance period can end quickly, leaving homeowners in the same financial situation they were in before the period began. However, once forbearance expires, homeowners will have several options such as full repayment, intermittent payments, extended loan terms, payment deferment, or loan modification.
The options are only available if homeowners can continue making payments. Many who are out of work or going through difficulties with their businesses may not have the means to pick up where they left off. This leaves them vulnerable to foreclosure, bankruptcy, or a short sale.
How Does the Mortgage Forbearance Program Benefit Investors?
The real question is, How can investors help homeowners during this challenging time? The answer is by offering to pay cash for houses in danger of foreclosure or helping homeowners avoid bankruptcy. Real estate investors can create a win-win situation by purchasing homes at just under market value while easing the burden of a high mortgage payment or poor credit.
Over the next six to 12 months, numerous homes will go on the market as a short sale or REO (real estate owned). Or there may be an influx of distressed houses that are getting ready to go to auction. Investors can find people in these situations and reach out to homeowners ready to sell or will likely lose their home due to repossession.
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