As the COVID-19 pandemic continues to devastate the U.S. markets, many of the mortgage borrowers may not be able to pay for their loans on time or in full. Of course, the government has prepared a back-up plan for that. The CARES Act, which was just made into law, lets borrowers skip their loan payments for up to a year and the deferred amount will be added to their remaining loans by the end.


But, there is one catch: the requirement needed to be able to avail the stimulus package of $2 trillion states that borrowers can simply say they do not have the capability to pay their loans and without the need to provide any proof of financial struggle, they can already avail the service.


Be honest with your financial situation


Because of  this, the FHFA (Federal Housing Finance Agency) Director, Mark Calabria, the chief regulator of mortgage behemoths Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation), asked mortgage borrowers to be more honest with their financial situations.


He said that the program operates in an honor system and that borrowers should practice integrity when applying for it. The program targets those who have lost their jobs and lost their incomes due to the precautionary measures by the government in the efforts to contain the coronavirus. These safety measures have caused the closure of many establishments and businesses for the meantime leaving a lot of workers hanging. He told those borrowers who can still afford to pay their loans should continue to do so because the focus should be fixed more into helping those who need the financial assistance the most.


While mortgage borrowers are initially not required of any proof of financial incapability to avail this mortgage forbearance, however, upon setting up their repayment plans, they will be asked to present documentations, which means that by then, if the borrowers are found out to be lying about their true financial standing, they will be held accountable their wrong deeds. This act is considered fraud and it certainly has its implications, an FHA spokesperson pointed out.


The longer it goes on, the more problems it will cause


Furthermore, Calabria said that there could be an estimate of 2 million borrowers who will be applying for loan leniency by May. Although if it goes on only for a few months,  mortgage servicers, and Fannie and Freddie, could handle it. But if it prolongs beyond two or three months, the director said, it would cause more trouble.


Things would surely get worse if the situation continues longer beyond the said number of months. If the virus situation would not get stabilized soon, there will be a lot of firms getting into more liquidity problems, he said.


While the subprime mortgage crisis which occured in between 2007 and 2010 has done a much more damage to the market than this recent ordeal we are all facing, FHA loans are still a vulnerable area. This type of loan requires low down payment from borrowers who have lower credit scores and they are being insured by the federal government.


Calabria also emphasized that during the subprime mortgage crisis, the situation had lingered longer and borrowers became vulnerable. So the key to this current pandemic crisis we are going through right now is the duration of how long this will be contained and stabilized so that the country can start rebuilding the economy.


He also said that once this situation goes on for six months or more, it is going to be stressful as problems continue to arise. The FHA market is what the authority and the people should fix their eyes on. With the credit standing of their borrowers who have lower credit scores, the impact could be much greater and broader which will then pose a higher risk and danger to the market.


With all that being said, the answer to the successful containment of the novel coronavirus or COVID-19 lies in the participation and the cooperation of the people in their communities’ safety measures. Once the virus is controlled and things slowly go back to normal, markets will start to patch up the damages and the economy will soon surge back up