Lenders May Not Be Telling At-Risk Owners the Whole Truth
New coronavirus relief measures enable most homeowners with mortgages to put off mortgage payments for a full year – and their credit won’t suffer. But perhaps because the program is new, some lenders are offering only three months of relief with a lump-sum payment at the end.
FORT LAUDERDALE, Fla. – Here’s some coronavirus relief your bank or home loan servicer might not be telling you: New federal coronavirus relief measures enable most homeowners with mortgage loans to put off making their mortgage payments for a full year.
And once we get back to normal, those borrowers will have the option to tack those missed payments to the end of their loan terms.
Your credit won’t suffer.
Yet, on social media pages of some of the nation’s largest banks, consumers say customer service representatives are offering them the opportunity to skip only three months of payments, and they’re saying those payments will become due as a lump sum at the end of those three months, along with the next month’s payment.
“What help is that!” a Bank of America customer complained.
Those customers were given only part of the story.
The federal CARES Act, signed by President Trump last month, gives borrowers of federally backed loans the right to contact their mortgage loan servicer and demand what’s called forbearance – in other words, skipping their mortgage payments – simply by attesting that the coronavirus crisis has resulted in financial hardship. No documentation of the hardship is required, regardless of how many questions your servicer asks about your financial situation.
Mortgage servicers, however, are allowed to approve forbearance periods for 90 days at a time. Before those 90 days are over, customers need to reach out again if they need another 90 days, and so on, up to a year, said Raphael Williams, spokesman for the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, guarantors of nearly half of all U.S. loans.
At the end of that forbearance period, however long it is, when you are ready to resume making monthly payments, servicers of federally backed loans must give customers several repayment options, including repaying the missed payments as a lump sum or spreading the payments over time, to be paid off in addition to regular monthly payments. In some cases, borrowers may choose to refinance their loans and reduce their monthly payments.
“Keep in mind, the servicer’s goal is to get the borrower into a plan that’s best for them,” Williams said.
Another option, which many borrowers will choose because it requires no additional out-of-pocket expense, will be to add the entire missed amount to the end of the loan, extending the loan by the number of missed months.
It’s important to note that these requirements apply only to federally backed loans. But chances are better than good that you have one.
You might think your loan is owned by the bank, credit union or mortgage servicing company that collects your payments and pays your taxes and insurance. But in fact, the Urban Institute, a nonprofit research organization, estimates that about 70% of home loans in the United States – about 33.4 million – are actually owned by an agency backed or controlled by the federal government, including Fannie Mae and Freddie Mac, government-sponsored enterprises that back a combined 28 million loans. The others are backed by the U.S. Department of Housing and Urban Development’s Federal Housing Administration (FHA or HUD loans, reverse mortgages, and loans for Hawaiian natives and Native Americans), the Veterans Administration and the Department of Agriculture (USDA loans).
There are a number of ways to find out which agency owns your loan. The easiest is to call the company where you send your loan payments and ask. Online lookup tools are available to find out whether your loan is owned by Fannie Mae or Freddie Mac. (Go to Fannie Mae or Freddie Mac to find out.)
Loans backed by any of those agencies fall under the protections enacted by the CARES Act, which stands for Coronavirus Aid, Relief, and Economic Security.
In addition to granting up to a year of forbearance, with no penalties, fees or additional interest, the government has forbidden any foreclosure actions against borrowers of those loans for 60 days beginning March 18.
Providing borrowers the option to add the missed payments to the end of the loan was specifically dictated to loan servicers by the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac. An official at one large banking company, who asked to speak only on background, said his company understands that the requirement is also in place for loans backed by the other federal agencies.
An official at another large banking company, also speaking on background, said it’s expected that all of the federal agencies will soon require servicers to offer the same repayment options. “The group tends to move together,” he said.
Alys Cohen, staff attorney for the National Consumer Law Center, which is tracking federal mortgage relief efforts, said repayment options that other agencies, such as FHA, USDA, and VA, require servicers to offer might be slightly different but the intention is the same.
“The policies are somewhat different for each ‘channel,’ but all of them have loss mitigation options for the end of a forbearance such that you don’t have to pay a lump sum,” she said.
The CARES Act doesn’t specify how mortgage servicers should handle the escrowed portion – property taxes and insurance – of mortgage payments. Some servicers are interpreting the law to require forbearance for those payments as well, while others have already addressed the issue.
For mortgage loans serviced by BB&T, “escrow payments are part of the forbearance and will be deferred,” BB&T spokesman David White said. “For taxes or insurance during that time, the client will be responsible for the increase. The increase can be spread over 60 months.”
Borrowers who choose not to escrow their taxes and insurance payments must deal directly with taxing authorities and insurers.
Some customer service representatives might have been conveying more limited options to borrowers in recent days because new instructions are still being sent from the federal loan backing agencies, said Bill Halldin, spokesman for Bank of America. Previous instructions were to tell customers they owed the lump sum at the end of the forbearance period, “and if their answer was, ‘I can’t do that,’ then we cascade to the other options,” he said Wednesday. Now, however, the message to consumers upfront is that they will be able to extend their loans by the amount of missed payment months, he said.
While borrowers of federally backed loans are legally entitled to skip up to a year’s worth of payments and loan extension repayment plans, federal lending agencies are still encouraging mortgage servicers to talk with borrowers about their financial situations and whether they can actually afford to make their payments.
Borrowers must contact their mortgage services to obtain any available relief. It won’t be granted automatically if you simply stop paying.
Keith Troop, chief lending officer for Tropical Financial Credit Union, said Monday that about 35 of the credit union’s home loan customers have reached out for help over the past few weeks.
“We’ve seen a lot of people who said their wages were impacted last month. The other group are people who are uncertain. They’re still working. They have money in their account. But they say, ‘I’m scared about what’s going on.’” In cases where people want to hold onto some of their money, the credit union might approve two months of skipped payments instead of three, he said.
Everyone associated with the relief effort urges borrowers to make their mortgage payments if they can afford it. Another stimulus measure is expected to be needed to ensure that mortgage servicers will have enough capital to make required payments to owners of the securities that finance the loans.
For the 30% of home loans that are not federally guaranteed – or roughly 14.6 million – no forbearance relief or repayment options are required.
But many are offering similar relief at the urging of federal and state authorities.
Bank of America, for example, has offered their own borrowers three-month forbearance terms and approval to extend the loans to the end of their terms up front, Halldin said.
The Urban Institute, in a March 27 blog post, estimated that under a worst-case scenario, 24% of home loan borrowers, or 11.6 million, will seek assistance. The cost of that assistance would range from $33 billion for three months of assistance to $66 billion over six months. But those numbers could rise, the post said, if forbearance is “freely available and not tied to unemployment or hardship.”
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