Coronavirus-related foreclosure protections for the millions of homeowners behind on their mortgage payments officially ended this summer. In addition, the final deadline to apply for a new mortgage forbearance – January 1st, 2022 – has already passed as well.
With delaying payments no longer an option, many homeowners are wondering what their next steps will be. In Massachusetts alone, we estimate that anywhere from 150,000-200,000 people are behind on payments, so this is a major issue state-wide.
Today, we’re going to break down the options Massachusetts homeowners have to get back on track with their mortgage and housing situation. As always, feel free to call us at (617) 831 6186 if you have any questions about the content below, and we’ll be happy to consult and point you in the right direction based on your needs.
So without further ado, let’s go over the best ways to stop foreclosure in Massachusetts in 2022.
Transitioning Out Of Mortgage Forbearance In MA
For economic and political reasons, the government desperately wants to avoid a repeat of the 2008 foreclosure situation. That’s why in August 2021, the Consumer Financial Protection Bureau issued a requiring loan servicers (companies that collect the actual payment on your loan) to work with and offer borrowers flexible options before initiating foreclosure. The regulation also makes it easier to access those options with less paperwork and documentation than you’d normally need.
Let’s get a sense of what these options are.
Repayment Plan
A repayment plan is an agreement between you and your servicer to pay back the past due amount over a period of time.
Let’s say you have missed 6 payments of $2000, putting you $12,000 behind.
You and the servicer might agree to pay this back over the next 60 months by adding $200 to the monthly mortgage payment (since $200 x 60 = $12,000). Of course, this only works if your financial situation has recovered and you can afford to pay a little extra to catch up.
Deferral
A deferral (or partial claim) can work in one of two ways.
In one scenario, the servicer can add the missed payments to the back of your loan. So if you had a 30-year mortgage and fell 6 months behind, you’d now have a 30-year and 6-month mortgage. In other words, your final payments on the mortgage (however many years from now) will simply be the payments you missed.
The other scenario is to take those missed payments and make them a separate mortgage – a second mortgage – that you’d pay off when the house sells or when you refinance. The great thing about this option is that the second mortgage typically wouldn’t require any monthly payments; it’s just a lien on the house that you pay off at a later date.
A deferral plan may be right if you can’t afford the higher payments under a repayment plan (see above).
Refinance
Assuming you have the good credit and income to do it, a refinance will get rid of the past due debt and will lower your mortgage payments over the long term.
Interest rates are higher than last summer but are still historically low, so if you can refinance into a new loan with a better rate, it might be worth the effort.
Our biggest piece of advice for homeowners looking to refinance is to really know the numbers.
For example, many folks forget to account for the actual cost of the refinance, which is typically around two to five percent of the loan amount.
You might lower your monthly payment from $2500 to $2000, but if the refi costs $12,000, it would take you two years just to break even. And that doesn’t even account for all the extra interest you’ll have to pay over the years if you refinance into a 30-year mortgage.
With that in mind, consider refinancing if you can shorten the term of your loan while keeping the monthly payments more or less the same. For example, going from a 30-year at 4.5% to a 20-year at 2.9% will cost you roughly the same each month, but could potentially save you tens of thousands in interest payments over the long term.
In short, make sure you really understand the numerical costs and benefits before pulling the trigger.
Loan Modification
If you can’t afford your current mortgage payment any longer, a loan modification is a potential fix.
A loan modification is almost like a new loan. In some cases, you can lower your monthly payment by extending the term of the loan. For example, if you have 10 years left on your mortgage, you might be able to extend those remaining payments over the next 30 years.
Obviously, this is not ideal since you’ll be stuck with a mortgage for a greater period of time and pay more interest, but it’s an option to consider and talk to your servicer about.
Reinstatement
This is the simplest option: just pay the past due balance as a lump sum and catch up on payments immediately. Remember, though, your servicer cannot box you into this option that’s best for them; they must give you alternative ways to pay.
Other Options If You Still Need Help
Relief Funds In Massachusetts
Some cities and towns in Massachusetts, including Boston, have set up foreclosure prevention funds to help homeowners catch up on payments.
Eligibility will vary by location. In Boston, for instance, you may be eligible if you earn less than 150% of the median income ($127,000), live in your home, are at high risk of foreclosure due to the impacts of COVID, and are 90+ days late on payments.
Contact your town and see if they are running a program similar to Boston’s.
HUD Counselors
The Department of Housing and Urban Development has expert counselors that can walk through your options with you at little to no cost. They do genuinely good work and can be an excellent resource. You can find a local list of HUD counselors here.
Home Sale
If you prefer to put the house behind you and move on to your next adventure, then selling the property is an option to consider. As professional homebuyers in Massachusetts, our team is happy to explore this option with you and put together a home offer that works for your situation.
Parting Thoughts
Being in foreclosure or behind on payments isn’t something to be ashamed of. Life happens, and even the most perfect-seeming people hit all kinds of roadbumps. Getting knocked down isn’t the end of the world. The true test – the real reflection of you – is whether you can get back up. And if you’ve read this far, we know you can.