Newsletter: If you can’t pay your mortgage, you have options

Good morning. I’m Rachel Schnalzer, the L.A. Times Business section’s audience engagement editor, with our weekly newsletter about how you and your bank account can weather the pandemic and prepare for whatever the economy might look like on the other side.

This week, in addition to highlighting some of our top coverage and a reader question, I spoke with housing reporter Andrew Khouri about options for homeowners who find themselves unable to afford their mortgage payments because of the coronavirus crisis. Our conversation has been condensed and edited for clarity.

Rachel: If you can’t make mortgage payments, what options do you have?

Andrew: Most mortgage companies are offering the ability to delay your mortgage payments if you have a financial hardship tied to the coronavirus pandemic. What exact options you have depend on what type of mortgage loan you have.

Under the federal CARES Act, if you have a government-backed loan, you have a right to delay your mortgage payments if you have a hardship related to coronavirus. There’s not a threshold; you don’t need to have lost 50% of your income. You just need to have experienced a financial hardship due to the pandemic. But you do have to request it, you don’t automatically receive it. You can get up to 180 days of delayed payments. At the end of those 180 days, you can request an additional 180 days if you need it.

Housing & Homelessness

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Many mortgage companies are also offering the option to delay mortgage payments for people without a government-backed loan. You should contact your mortgage servicer to see what options they have.

R: How are you expected to repay this money? There’s a new option, right?

A: Forbearance programs do not forgive the payments that you missed. You still need to pay that money back, but if you have a government-backed loan, authorities say you don’t need to pay it back in a lump sum. How you pay back a government-backed mortgage depends on the type of loan you have.

Before the new option was announced, there were already a few ways to pay back loans. For example, if you had a Fannie Mae- or Freddie Mac-backed loan and couldn’t afford the lump sum, you could increase the dollar amount of your mortgage payments. If you couldn’t afford to increase payments, you could extend the length of your loan (which would ultimately increase how much interest you end up paying in the long run).

The new option is that now, for Fannie Mae or Freddie Mac loans, if you can’t pay the lump sum, you could do a deferral, which puts the money you owe at the back of the loan. When the loan ends or when you sell your house, you’d have to pay it all back at once.

R: What if you can’t afford to pay back the loan even then?

A: Most homeowners sell or refinance before their loan term ends. In the case of a refinance, the missed payments would be added to the principal of the new loan.

If a homeowner hasn’t refinanced or sold and reaches the end of the loan without being able to back all the missed payments at once, Fannie Mae and Freddie Mac said they would work with the mortgage servicer on other options for repayment.

R: Can you seek mortgage forbearance even if you can still afford your payments?

A: To qualify for forbearance under the federal CARES Act, you have to have a financial hardship because of the coronavirus, but there’s no threshold for how great that hardship has to be; you just have to attest you’re facing one. See what your circumstances are and do what you think is best. Just don’t lie about having a hardship, and remember, you will need to pay the money back at some point.

R: Do you have any additional information that may help homeowners?

A: Ask for things in writing. After you request the mortgage forbearance, get something in writing from your servicer that goes over how the program will work and confirms the agreement.

If you are having trouble with your mortgage servicer, you have options. You can make a complaint with the Consumer Financial Protection Bureau. There are also housing counselors approved by the Department of Housing and Urban Development that can offer free or low-cost help navigating this process.

Other stories you may find helpful

— Will there be a second round of coronavirus stimulus checks? Never say never, but it’s not likely in the near future. Lila Seidman and Fidel Martinez explain the politics behind getting another stimulus check deposited into your account.

—This is a hard time to be burdened with a lot of credit card debt. But if you’re thinking about getting a consolidation loan, think again, says certified financial planner Liz Weston. Weston shows how taking out a consolidation loan could result in higher interest rates than you’d otherwise face.

— Value investing — buying shares of solid businesses whose stocks are trading below what you think they’re worth — has been losing its appeal since the 2008 financial crisis, and its performance during the pandemic has not impressed. Robin Wigglesworth of the Financial Times explores whether value investing still makes sense.

— Wondering what your office will look like when you finally return? Roger Vincent outlines the social distancing and sanitation protocols we’re likely to see. One example: No more communal doughnut boxes :(

— “Hero pay” is being discontinued for many essential workers, even though the threat of catching the virus isn’t subsiding. Suhauna Hussain interviewed workers who describe the conditions they continue to face in grocery stores and coffee shops.

— California’s community college system has sued the federal government for denying coronavirus relief funds to more than half a million students, Nina Agrawal reports. This number includes many students who come from low-income families, as well as DACA recipients.

— Last week, Democrats in the state Senate unveiled two proposals to help Californians get through financial hardships caused by the pandemic. As John Myers writes, one asks landlords to forgive rent payments in exchange for equally sized tax credits, while the other suggests creating a $25-billion economic recovery fund by issuing long-term vouchers to those willing to prepay their future state income taxes.

— A way for governments to help the economy: Bail out child-care providers, says The Times’ Editorial Board. After all, it’s difficult to have a strong economy if parents can’t work — and without schools, summer camps and day-care centers to provide child care, a large portion of the workforce will not be able to return to their jobs.

Reader question

A reader asks us: I’ve applied for unemployment and received the additional $600-per-week federal benefit. Is that $600 taxable?

My colleague Samantha Masunaga checked it out. Here’s what she discovered:

Like normal unemployment benefits, the additional $600 is subject to federal income taxes, said Rob Seltzer, a CPA at Seltzer Business Management Inc. in Century City. But it is not taxable by the state of California, according to the state franchise tax board.

While the state and federal government may differ on unemployment benefits, they are united on a different coronavirus-related financial point. The stimulus checks from the federal government are not subject to federal or state income tax, Seltzer said.

One more thing

Are you a music teacher, fitness class leader or any other kind of instructor unable to meet with clients in person during the pandemic? Thinkific could be a good option for you. The software enables you to create and publish an online course on any topic, such as “How to Improve Your Abs” and “How to Master Excel.” Kathy Kristof reviewed the software’s benefits and drawbacks, and she recommends Thinkific over Udemy, another online learning platform.

Have a question about work, business or finances during the COVID-19 pandemic, or tips for coping that you’d like to share? Send us an email at [email protected], and we may include it in a future newsletter.

Until next week!