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The CARES Act: Mortgage and Student Loan Relief

April 30, 2020

To help homeowners and renters have the most up to date and accurate housing assistance information, the CFPB, FHFA and HUD launched the new mortgage and housing assistance website, cfpb.gov/housing. You can also use their tools to determine if your mortgage is federally backed and for renters to find out if their rental unit is financed by FHA, Fannie Mae or Freddie Mac.

Homeowners

The CARES (Coronavirus Aid, Relief, and Economic Security) Act requires the servicers of federally backed mortgages to postpone mortgage payments at the borrower’s request, provided the borrower affirms financial hardship due to COVID-19. The postponement must be granted for up to 180 days and extended for an additional period of up to 180 days at the borrower’s request. During this period, no fees or penalties are allowed to accrue.

Considerations around mortgage relief:

  • If you’re struggling to pay your mortgage due to COVID-19, contact your mortgage company to determine whether your loan is federally backed and what options are available to you (e.g., defer payments, make a partial payment, modify a loan or contract).
  • Importantly, this relief could help stabilize your finances by allowing you to prioritize your spending on areas where no financial relief is available.
  • In addition, understand that other areas of financial assistance may be available.

Federally Backed Mortgages (e.g., HUD, VA, FHA, USDA, Fannie Mae, Freddie Mac mortgages):

  • Understand the details: If you have a federally backed mortgage, the CARES Act requires mortgage servicers to allow you to postpone payments for up to 180 days upon request, and up to an additional 180 days, if requested. Bear in mind, different companies have different policies regarding how to make postponed payments, including requiring you to pay the entire missed amount when payments resume. It’s important to understand the implications of each option.
    • If you postpone payments under the CARES Act, your mortgage company cannot charge late fees or penalties.
  • Understand your Credit Protection: The CARES Act also prevents mortgage servicers from reporting negative credit events related to accommodations made under the Act from Jan. 31, 2020, to 120 days after the coronavirus national emergency ends. That means it’s possible this protection could end before the allowable postponement period.
    • Credit reporting mistakes are routinely made, so it’s a good idea to check your credit report to ensure negative credit events aren’t mistakenly reported.
    • If possible, don’t miss payments before entering into an accommodation program with your mortgage provider, as this can impact your credit report.

For mortgages that aren’t federally backed:

  • The CARES Act does not provide any relief or protection for mortgages that aren’t federally backed. However, many lenders are providing assistance programs to help homeowners affected by coronavirus. We recommend you contact your lender to determine what options may be available to you.
  • Similar to the guidance above, be sure to understand the trade-offs of your options, such as when you may need to pay back postponed payments, how interest or fees might accrue, and the potential effect on credit reporting.

Renters

Until July 25, 2020, landlords with mortgages backed by the U.S. Department of Housing and Urban Development (HUD), Fannie Mae, Freddie Mac and other federal entities cannot evict tenants due to nonpayment. Landlords also can’t charge any fees or penalties for nonpayment of rent.

  • While the CARES Act offers protection for renters whose landlords have federally backed mortgages, it’s typically difficult to know what kind of mortgage your landlord has and, therefore, whether the protections apply. Some local jurisdictions have created their own temporary halts on evictions for all renters, but that varies by location.
  • If you’re struggling to make rent and have a good relationship with your landlord, we recommend letting them know of your situation and determining if there’s an agreeable modification to your rental payments. If your landlord begins pursuing eviction during this period, you may need to get a legal advocate to represent you. Many communities have local organizations dedicated to providing advice to renters.

Student Loans

The CARES Act automatically suspends payments for federally held student loans through Sept. 30, 2020, with no interest accruing during the suspension period.

Federally Held Student Loans

The suspension of payments and associated interest offers an opportunity to use what you would normally pay to create more financial stability. Consider deploying those funds in the following order:
  • Cover other expenses: If you are struggling with current expenses, prioritize necessary expenses for which you can’t obtain assistance from public or private programs.
  • Build your emergency fund: We generally recommend keeping three to six months of expenses in cash as an emergency fund, and you may want to err toward the longer side given uncertainty surrounding this environment.
  • Pay down other debt or invest for other financial goals:
    • Debt reduction: Rather than making voluntary payments toward debt that isn’t accruing interest, consider paying down other debts, starting with your highest-interest debts.
    • Invest for other goals: If you have adequate emergency savings, aren’t trying to pay down debt and are confident in your financial stability, the recent market downturn could offer a good opportunity to invest for long-term financial goals.
  • Make voluntary payments to pay down federally held student loans: Because interest isn’t accruing, voluntarily making your normal payments will enable you to pay down your loans more quickly.
    • This time will continue to count toward loan forgiveness programs, even if payments are not made. If you’re working toward a loan forgiveness program, since interest isn’t being accrued, it likely makes sense to discontinue payments until Sept. 30, 2020 (and not make any voluntary payments).
    • Loan servicers aren’t permitted to report any negative credit events on your credit report for not paying during this period. However, credit reporting mistakes are routinely made, so it’s a good idea to check your credit report.

Private Student Loans

  • The CARES Act does not provide any relief for private loans and loans that are not federally held.
    • However, some Federal Family Education Loans (FFEL) and Perkins loans not owned by the Department of Education can be consolidated into Direct (federally held) loans, which would allow them to qualify for the CARES Act payment relief. It’s important to consider the interest rate on your existing loan versus the rate on the Direct Consolidation loan before choosing to consolidate. Visit studentaid.gov to submit a Federal Direct Consolidation Loan Application if you believe consolidation would be beneficial.
    • Additionally, many private lenders are providing assistance programs to help borrowers impacted by coronavirus. However, the specific details around the programs vary, and interest may continue to accrue. We recommend you contact your loan servicer to determine what options may be available to you.

Important Information:

These materials are for general education only, and any specific questions related to your individual circumstances should be discussed with your personal financial, tax or legal advisor, as appropriate.

Edward Jones has not independently verified and is not responsible for third-party content.

More Resources:

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