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CARES Act Protections Not Federally Backed Mortgage

My Mortgage is Not Federally Backed, Will the CARES Act Help?

Impacted by the COVID-19 pandemic?

What if you’re experiencing financial hardship due to the COVID-19 pandemic, but your loan is not federally backed, what do you do then?

As you probably know, on March 27th, 2020 a new law was passed called the CARES Act, and the CARES Act was specifically designed to help folks that have federally backed mortgages, which covers about 70% of homeowners that are out there.

Anyone that has a loan that is backed by Fannie Mae, Freddie Mac, VA, FHA, or USDA are all federally backed mortgages.

Federally backed mortgages do account for about 70%,  but what if you fall into the 30% of mortgages that are not federally backed by Fannie, Freddie, FHA, VA, USDA?

What if your loan is not federally backed?  There are options. The CARES Act can only be enforced if you have a federally backed mortgage. However, if your loan is not federally backed mortgage, your servicer is highly encouraged to follow these same guidelines.


What are the CARES Act Guidelines?

The CARES Act guidelines are pretty simple, but the simplest one and the easiest one that most people are interested in is the forbearance process.  How do you request the ability to skip payments if you’re experiencing financial hardship?

The process should be pretty much the same if your mortgage is not federally backed, but the CARES Act, if you have a federally backed mortgage, your servicer is not allowed and cannot require you to prove a hardship.

So if your mortgage is federally backed you can simply call your mortgage company and sometimes just go online, check a box that attests that you had a financial hardship, and you’re automatically granted up to 180 days forbearance, and if you still have a hardship you’re granted an additional 180 days forbearance.

…but you don’t have a federally backed mortgage, so what do we do?

State-Level Solutions to the Rescue?

There are some interesting developments happening around this topic at the State level.  This is absolutely going to be a challenge for a lot of people.

The reality is your servicer does not have to follow the guidance in the CARES Act, but they are highly encouraged to do so. Now, whether they actually do it or not, we don’t know. Hopefully, they do.

Considering Forbearance? Get the Facts First - ForbearanceReport.org

Most of the reports that we’re seeing from homeowners it does seem that they are able to get granted forbearance, but once you get granted forbearance, once you’re given the ability to skip your payments, really the challenge is going to come in is when you try to make your loan current, and this is where we think the problem is going to be.

There are going to be a couple of reasons why this might be a challenge. The first reason, obviously, is that there’s a lot of folks that had to stop making their payments at once, so when they start calling in to try to reach your servicer it’s going to be challenging to connect with somebody, and it’s going to be challenging to get somebody on the phone especially if it’s a non-government servicer or if it’s a servicer of non-federally backed mortgages.

The reason why I say this is because they’re probably typically smaller servicers. They may not be as prepared. They may not have the same systems in place, the same processes in place, and they may not have the same staff in place. They tend to probably be smaller servicers, and they’re definitely servicing your loan because it’s a little bit outside the box.

This is a tough one, and we’re not really sure what’s going to happen with this. The single most important thing you can do is communicate with your servicer. You have to get on the phone with your servicer.

Try to get everything in writing. You’re going to have a conversation with them.

  • Can I skip payments?
  • What happens after I skip the payments?
  • How do I pay those payments back?

Some of the protections that are given under the CARES Act are some of those options on the other side like deferring the payments, like taking all of your skipped payments and putting them on the backend of the loan.

Under the CARES Act you cannot be required to make all of those payments back in one lump sum. However, if your loan is not federally backed and your servicer requires you to make all of those payments in one lump sum, they technically can.

Now, if you can’t afford to make that payment, you know, there are other options. They’re going to look at other workout options. They’re going to probably talk about a repayment plan where they’ll spread out the skipped payments over a period of time. They may require you to make all of your payments upfront, hopefully not.

They may also allow you to defer the payments and put it at the end of the mortgage. They may also do a loan modification to either adjust your loan term or your interest rate in order to keep you in that home.

The thing that you need to understand is mortgage servicers do not want to foreclose on you. Lenders do not want to foreclose. They’re not in the business of foreclosing, taking in real estate, and then having to sell that real estate again.

That doesn’t do anybody any good, so that’s not their intention. I hear this from consumers a lot that says it seems like they just wanna take my house. Trust me, they don’t wanna take your house. They’re just not organized, that’s it. It’s probably that they just don’t have the personnel, they weren’t prepared for this, and quite frankly, they’re probably having financial troubles because people aren’t making their mortgage payments.

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So if your loan is not federally backed understand that those options, those options could be a little bit more complicated, they’re not gonna be as cut and dry as if you have a loan that’s backed by Fannie Mae, Freddie Mac, FHA, VA, or USDA.

State-Level Legislation to the Rescue?

There are some states that are taking steps in order to treat non-federally backed mortgages exactly the same as federally backed mortgages under the CARES Act.

After writing this article, we found special legislation to protect homeowners has been passed by Oregon, Washington D.C., and Massachusetts

New York state’s legislation states that a non-federally backed mortgage servicer, any servicer, any lender that is licensed in the state of New York by a State of New York regulatory board, whether it’s a department of real estate. Here in California, we have the Department of Real Estate and we have the Department of Corporations.

So you can have a license under either one of those two organizations. So this particular legislation passed in New York is going to require lenders that are licensed by the State of California, whether it’s a federally backed mortgage or not, to more or less follow the guidelines in the CARES Act.

I think New York got a little bit aggressive because there’s wording in there that’s probably going to create some pushback and some lawsuits mainly because there are some verbiage that’s interesting in there like the initial forbearance is for 180 days and if the homeowner requests an additional 180 days you have to automatically give it to you without having to prove any hardship.

That’s probably not going to stand up, and that’s probably going to be challenged, but I bring this up because I think it’s really important because New York is the first state to do this, I know California is right behind them.

So even though the CARES Act is a federal act that’s sort of an umbrella law that covers all federally backed mortgages, again, about 70% of all mortgage, of anyone that has a mortgage it’s probably federally backed, but what we’re talking about is that 30%.

That 30% that’s leftover. Keep an eye on this. If your loan is not federally backed communication is so, so important.

Be Prepared for Anything

I really encourage you to claim your free financial FinLocker that we’re offering here. If you’re interested in this stuff and you want to get more information, we’re putting out these videos about forbearance, about reinstatement, and about how to navigate this COVID-19 crisis.

Get the Facts About Forbearance - ForbearanceReport.org

So please, if this was valuable information share it with anybody that you know that’s in this situation, like this video, and please subscribe to this channel to be notified of all of any upcoming information. That said, there’s still a lot that we don’t know, so this is what we know now, this is what we’re hearing now, and as news comes out we will absolutely bring it to you as we hear the information.

These are going to be challenging times, and our goal here is to make sure that you’re always on top of what your options are, you know your rights, you know your options, and in a best-case scenario, you know what your options are better than the person that picks up the phone at your servicer so that you can have a little bit of control of how you exit through this and how you get through this gracefully.

So thank you. If you’d like more information, all of our information is below, you can contact us if you have questions. If not, stay tuned for next time, and we’ll give you updates as they happen.

Expert Answers

If you have questions about forbearance, please see our special project – ForbearanceReport.org

If you would like to be introduced to someone that I know and trust to talk about a new purchase or refinance loan, click on any of the graphics in the sidebar or any “Find the Right Lender.  Find the Right Loan” link in the article.

If you want the truth about interest rates, home values, and what’s going on in the market, Josh Lewis, Broker/Owner of BuyWise Mortgage, a California Mortgage Broker, is one of the smartest people I know!

Josh does a weekly mortgage market update that many are finding essential to making informed decisions about one of the biggest and most important investments you and your family will make.

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About the Author

Scott Schang

A 20+ year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues and making sense of complicated real estate and mortgage topics on this website since 2007

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  • Cynthia says:

    Thank you so much for this article! After feeling very relieved at being granted Forbearance by both my first and second mortgage servicers, I am now learning the difference between Federal and non Federal backed loans and am very dismayed to learn I am in the 30% group whose loans are not protected by the CARES ACT. Both my Forbearances end this month, March, and I am very stressed about my options. Every day I ck all updates I can find online, hoping for a news announcement that non Federally backed mortgages are now protected.
    I will be following your page.

    Thank you,

    • Scott Schang says:

      Thank you, Cynthia! Yes, unfortunately Federally backed is a qualifier for both mortgages and student loans – Great news that you were not in the 30% of non-federally backed mortgages!