The longest government shutdown in US history is taking its toll on federal employees, government contractors and low-income families, intensifying the ripple effect on the broader economy. The housing finance industry is now activating plans developed to respond to the 2008 housing crisis and natural disasters, with mortgage servicers reaching out to help mortgage borrowers who may be struggling to pay.
Communicating with your mortgage servicer is key
As with past crises, the key to managing a mortgage through financial hardship is proactive communication with your mortgage servicer.
Mortgage servicers perform all the processing work after a borrower takes out a mortgage, including sending monthly statements and collecting and remitting monthly mortgage payments to investors and other third parties. One of the most important roles of a servicer is working with borrowers who are struggling to pay their mortgage.
Government agencies such as the Federal Housing Administration (PDF), Fannie Mae (PDF), Freddie Mac (PDF), and the Department of Veterans Affairs (PDF) have recently provided guidance to servicers for handling furloughed workers experiencing a loss of income. Assuming the government shutdown is short term, workers may be eligible for a forbearance, where a mortgage payment is temporarily suspended.
If the shutdown becomes long term, borrowers may be eligible for a repayment plan based on an agreed period with an additional amount tacked on to repay the delinquency.
For affected government workers and contractors who may need short-term financial assistance, several credit unions and banks are providing 0 percent short-term hardship loans, increases in lines of credit, and waving of overdraft and monthly service fees. These protections can be activated by having a conversation with your financial service provider.
Servicemembers have special financial protections
Active-duty servicemembers affected by the shutdown, such as members of the US Coast Guard, may have financial protections available to them through the Servicemembers Civil Relief Act (SCRA). The SCRA eases the financial burdens of all active-duty members of the armed forces, reservists, and members of the National Guard.
Of these, only the Coast Guard is affected by the shutdown, as it is a part of the US Department of Homeland Security (the other branches of the military are part of the US Department of Defense, which is fully funded).
The SCRA provides reduced interest rates, protection from default judgments, protection from negative reporting to national credit reporting agencies, and protection from eviction, repossession, and foreclosure.
Servicers use a database through the Department of Defense known as the Defense Manpower Data Center (DMDC) to verify active-duty military status. But because the US Coast Guard operates under the Department of Homeland Security, the DMDC may not have the readily available data to verify these servicemembers’ military statuses because of delays in receipt and upload of data to the Department of Defense, which relies on the appropriate data being sent from the Department of Homeland Security.
Military members should take no chances and contact their lender or servicer to ask if SCRA protections apply, and if so, what they can do to secure these protections.
These are just some of the relief options available to government employees and contractors during this uncertain time. Above all, minimizing the economic hardship caused by the shutdown starts with proactive communication with financial service providers.