With the coronavirus outbreak, most industries and their respective consumers are facing financial hardships. Millions are now facing unemployment, and it seems the situation is heading for the worse in the coming times. Federal relief programs like unemployment insurance and Families First Coronavirus Response Act (FFCRA) is helping the US citizens in the time of need. But some financial experts point out these measures will not be enough for people with mortgages and other financial responsibilities.
As the credit union handling mortgages in Wareham MA puts it, these financial aids are just providing the prime nutritional funding to an individual. No way it (the funding) can cover the loans and mortgages taken by an individual. Several financial experts state that with borrowers without a definitive source of income, one can expect the following three things happening:
1. Request for forbearance
With time, the financial institutions and the credit unions will be flooded with requests from the borrowers to understand their current situation and seek forbearance.
2. Rise in outbound collection
Secondly, the financial institutions will witness a surge in the number of past due accounts. People who do not belong to any government-sponsored mortgage program or borrowers who failed to proactively did not initiate a conversation with the banks earlier would fall under this category.
3. Liquidation of assets
Last in the chain of events would liquidation of assets in the event of forbearance tenure. In most cases, families who could not get back on track would end up either liquidating their assets or setting up a repayment plan for the mortgage.
Financial Action Plan during the crisis
These are tough challenges, and we were not ready for them. The credit union, dealing with mortgages in Wareham MA, points out lenders (like them), as well as the borrowers, have to gear up for the change and develop suitable workarounds. In this situation, we can:
i. Taskforce
Start with forming a task force. The job of this command center would be to collect all the intel available and process the data for the resources.
ii. Working with the new normal
We have to adjust to the new normal and revise the way we function. With revised guidelines and changes in federal policies, there needs to be well-documented paperwork to ensure the rightful utilization of the resources.
Advice for borrowers
In the moment of crisis, borrowers must look into the following options to help them manage their mortgage:
a. Seeking assistance from the lenders
Many federal loan agencies have made provisions for the debtors affected by the financial crisis created by COVID 19. Few of them are offering penalty-free forbearance for almost 12 months, without impacting the credit score. Additionally, mortgage modification schemes are also being introduced. Private lenders are also coming forward, and offering waivers for COVID impacted debtors.
Mortgagors looking for relief in the current financial crisis should proactively approach the lender and discuss the available options. The process might take some time to complete but bear with the situation. The lender can demand proof of financial hardship before approving the relief on the mortgage payment. You can offer the pay stubs to verify your financial crisis.
b. Using the home equity
Home equity could help finance your mortgage. If your home has earned good value in equity, then it could be a good time to liquidate the value for cash-out refinancing. There is some difference between the regular refinancing and cash-out refinancing.
c. Refinancing the mortgage
In situations where the lender does not agree to forbearance, you can look into refinancing the mortgage. Refinancing the loan means you are taking a new loan pay off the mortgage, at a revived interest rate. Although most refinancing institutions are currently overwhelmed with refinancing requests, some small lenders and community credit unions can come in assistance.
The mortgage management in the time of need could make it difficult for anyone with financial responsibilities. To make the matter easier, PCT Federal Credit Union is helping the Wareham community in managing their finances. You can reach them at http://www.pctfcu.org/ or call 508-291-0777.
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