On the first of the month, millions of Americans made mortgage payments but with the economy at near halt, it’s hard to say how many homeowners will be able to do that again. The coronavirus crisis has made the world an entirely different place with the prospect of a prolonged recession looming and millions applying for unemployment.
We’ve put together a list of answers—with help from some mortgage industry experts—to some questions that are likely on the minds of many Chicagoans during a period of time when there is widespread uncertainty about whether there will be money to keep making payments.
What should I do if I can’t pay my mortgage?
The first thing to do—and this holds true even before the crisis—is to make sure you know which financial institution is servicing your loan (i.e. who are the payments going to, which frequently changes as mortgages are bought and sold). Then, get on the phone and give that institution a call, and explain your concerns.
As of Friday, Bank of America said it had already received 150,000 requests for deferrals, which allow a borrower to tack on one or more payments to the end of the loan term.
If your loan servicer is a large bank, you’ll probably spend some time on hold. Tory Molitor, CEO of Chicago-based Molitor Financial Group, recommends calling, if you can, at an off time, like 9 p.m. instead of 6 p.m., when call volumes are higher.
It’s also important to diligently document your financial hardship if you go this route, both to make your case to the bank and be prepared for any future relief options that might come from from the federal, state, or city level.
Will there be a mortgage freeze?
It’s possible a 90-day freeze on mortgage payments might be coming, Molitor says.
“You can’t shut down cities and tell people they can’t go to work and then turn around and tell them they have to keep paying for everything.”
Even if that doesn’t happen homeowners have options. The recently passed federal stimulus package, the CARES Act, provides an opportunity for forbearance up to 180 days. Chances are your bank is offering other relief, too. The American Bankers Association has also published a list of steps that banks around the country have taken to work with borrowers impacted by the coronavirus. Check if your bank is listed and find out what relief you might be able to get (and avoid getting stuck on hold over the phone).
It’s also worth noting that the CARES Act includes $339.8 billion that will be divvied up among state and local governments. The portion of money that Illinois gets can be used for the state’s COVID-19 response, and could be used to ease the burden of housing costs.
Looking more broadly, postponements of mortgage payments could make things tricky, says Adam Kriticos, a Chicago-based loan officer with Summit Funding. He explains, individual loan servicers are limited in what they can do, in part because Fannie Mae and Freddie Mac, the two giant federally-backed companies, own almost all household mortgage debt. So, they are owed the principal and interest on mortgages given out by banks all over the country. Even if your bank offers a break, with so many borrowers in need of help it could lead to a dire situation.
“A lot of banks aren’t sure how they’re going to handle this. They’re burning through capital,” Kriticos says.
What if I’m a landlord and my tenants are saying they can’t pay rent?
While you can still file an eviction, it won’t be processed by the courts or enforced by the sheriff’s office until May 18. It’s illegal for landlords to change the locks on tenants or kick them out. Tenants must also be given a 30 day notice if their lease isn’t getting renewed.
Whether you own several apartment properties or are just renting out the unit in your own two-flat, it’s important to communicate with your tenants. The Department of Housing has postponed rent payments for people living in public housing—and the mayor is encouraging landlords to do the same.
Domu, a Chicago-based apartment hunting website, has written a guide for how landlords should be working with tenants facing financial hardships. Landlords who don’t collect April rent could appeal their property taxes due to a loss in revenue. Other options are refunding the tenant’s security deposit if they agree to use it for April’s rent or spreading out April’s rent in small chuncks over the next few months.
Is there any relief for Illinois homeowners?
There’s a few things that are helping Illinois residents: a moratorium on evictions, foreclosures until May 18 and a moratorium on utility shut-offs and a delay in payment until May 1.
The state has also urged mortgage servicers to allow a 90-day deferment of payments, although lenders are not currently required to abide by this request. The city also created a grant that would distribute a one-time, $1,000 grant for 2,000 residents to help with rent or mortgage payments.
As for property taxes, those bills will still come on August 1. But, the city has delayed collections of fines and fees for small businesses (which include landlords).
Local aldermen, housing rights groups, and even the former governor Rod Blagojevich, are putting pressure on the state administration. Gov. Pritzker could convene a virtual legislative session to determine ways the state could provide housing relief. The Autonomous Tenants Union is calling for the governor to repeal the ban on rent control—which would allow legislators to enact a freeze on rent and mortgages.
Should I refinance my mortgage now?
Even before the coronavirus crisis, many homeowners were refinancing due to historically low rates. Now that those rates have dipped even lower, there’s an avalanche of homeowners trying to refinance.
Interest rates are now back to levels the industry saw in 2008—but that doesn’t mean mortgage rates are seeing the same lows.
Right now, the Federal Funds Rate, which is the interest rate that banks pay when they loan to each other, is near zero, after dropping from about 1.5 percent in rare emergency cuts earlier this year. But even zero-percent rates for banks don’t mean zero-percent interest loans for mortgages.
As of writing, the average rate on a 30-year fixed-rate mortgage came in at about 3.59 percent, according to NerdWallet. That’s only down about 0.23 percent from late February, just before those emergency rate cuts.
So to put it succinctly, the floor for how low mortgage interest rates could go is quite low. That means refinancing could save some homeowners money. For those who are refinancing loans with rates that are at least one percentage point higher, it could be a good strategy.