Most out-of-work homeowners frightened by the thought of suspending their mortgage payments can rest easy.
Regardless of what their mortgage servicer tells them, the 70% of borrowers with federally backed loans won’t be on the hook to repay those missed payments all at once at the end.
But that’s not what many are being told when they reach out to hit the pause button on their monthly payments.
Many, if not most, loan service companies are telling borrowers they can stop making payments for only up to three months and will have to repay it in a lump sum on the fourth month.
That’s not accurate. Borrowers have many repayment options, but their mortgage servicers aren’t being allowed to offer them up front.
In fact, the same bureaucracy that OK’d letting borrowers secure a forbearance for up to 12 months and shift those payments to the ends of their loans is also to blame for why those customers are being given incomplete information.
These are your options:
Extend the forbearance. Mortgage servicers — the companies that manage your loan and take your payments — are instructed to allow you to miss payments for three months at a time, up to a year. This requires borrowers to make up to four separate requests and delays their ability to secure a repayment plan from one of the next four options.
Repay all of the missed payments in one lump sum. Most mortgage servicers know that anyone who skipped payments because they lost their income will be unable to do this.
Spread those missed payments over a period of time, typically six months to a year, to be paid on top of the regular mortgage payment. This option will also be difficult for most borrowers exiting forbearance.
Extend the loan by the number of missed months. This shifts those missed payments to the back end of the loan. This is the option, alternately called a deferral or extension, that banks know will be sought by most borrowers who emerge from forbearance with their previous incomes more or less intact. If they can’t afford to resume the same payments they were making before entering forbearance, they must be offered the next option.
Modify their loan. This could result in the reworking of the entire loan, including its length and interest rate to make it more affordable.
The problem for borrowers is that mortgage servicers have been instructed by loan guarantors like Fannie Mae and Freddie Mac not to offer the repayment options when the customer first calls to request a forbearance. Servicers are told to follow a process where those options emerge only as the process moves forward.
A script produced for servicers of Fannie Mae-owned loans, available from its website, includes language at the end suggesting the possibility of setting up a “repayment plan,” “alternative ways of paying back the suspended payments” or “we can look at a modification.” But further details are not provided, and borrowers are told “you won’t have to repay it all at once — unless you are able to do so.”
Many borrowers have flooded social media with accounts of contacting their mortgage servicers, large and small, with requests to skip payments, then being told they can skip only three months and must repay them in a lump sum on the fourth month.
Michael Zemon, of Pembroke Pines, said he tried to explain to his mortgage servicer what options are required for his Fannie Mae loan “and they had no idea what I was talking about.” He added, “I’m waiting for a supervisor to call me back tomorrow.”
Only when the borrower nears the end of the forbearance period will the servicer begin to discuss repayment options, after asking whether the borrower can repay the full amount of missed payments.
If that’s not possible, then the borrower will be asked to spread it over a fixed amount of upcoming payments. If that’s not affordable, then the servicer can offer to move the missed payments to the end of the loan or offer a loan modification.
Help in a disaster
The options were created by the Federal Housing Finance Agency to help victims of natural disasters keep their homes with minimal paperwork or documentation, said Sara Sanghas, a lending administrator for the Mortgage Bankers Association, an industry trade group.
None of the options require out-of-pocket fees, housing industry representatives said. Sanghas said she believes language in the coronavirus relief act protects participants from negative credit reporting as long as they fulfill terms of their repayment plans.
Similar options are available for the comparably lower number of borrowers with loans backed by the other federal guarantors — the Federal Housing Administration, the U.S. Department of Agriculture and the Veterans Administration — but the qualification process might be slightly different. And options will be different for borrowers who entered forbearance with loans that were delinquent or in foreclosure.
Officials stress that borrowers who need forbearance must not simply stop making payments. They must first contact their servicer and tell them they are undergoing financial hardship caused by the coronavirus. Otherwise their loans will become delinquent.
The bureaucratic hoops required before customers can be assured they’re not on the hook for lump sum repayments are leaving borrowers feeling frustrated and rejected while creating unnecessary work for mortgage servicers, said David M. Dworkin, president and CEO of the National Housing Conference, a nonprofit research organization that advocates for housing affordability.
Dworkin wants federal guarantors to give servicers the same flexibility to grant immediate forbearance and extensions to borrowers of federally backed loans as servicers have for loans they own themselves. Bank of America, for example, can suspend payments of loans it owns and move them to the end of the term as soon as a borrower asks for help.
He wants to see new policies reflecting the ugly reality that millions of borrowers won’t be in a position to resume making their previous payments any time soon. “Rather than this waterfall of options, we need a clear, concise national approach to mortgage forbearance,” he said. “Otherwise, it will continue to be confusing to borrowers and more labor intensive for servicers.”
Dworkin noted that more than 26 million people have been furloughed or laid off since mid-March. The percentage of borrowers who have requested forbearance has increased from 0.25% on March 2 to 5.95% as of April 12, according to the Mortgage Bankers Association. That number is expected to climb.
“We need to automate the forbearance [and relief] process,” Dworkin said. “We can confidently say that many of those people who lost their jobs are not going back to work next month or the month after or likely for a very long time, and it’s not their fault.”
Check your bank’s website
In recent days, large banks have begun posting detailed information sheets on their websites that help borrowers understand what options will be available when their forbearance periods end. These pages have been posted by several of the biggest servicers, including Bank of America, Wells Fargo, BB&T (Truist) and Citibank.
Singhas, at the mortgage bankers group, said she doesn’t believe it’s harmful for the federal guarantors to require borrowers to check in periodically with their servicers and to wait until their forbearance periods end before offering repayment options. Otherwise, borrowers might be locked into obligations, such as resuming their regular payments that they’ll be unable to fulfill. It’s better that the current system provides flexibility to offer modifications that will lower payments, she said.
Singhas said mortgage servicers should be doing a better job of communicating to borrowers that they won’t be forced to repay the lump sum of the missed payments immediately after their forbearance periods end.
“Options need to be communicated better and more clearly,” she said. “In normal times, whatever that means, forbearance was not used often. It was short and temporary, perhaps for a month or two, and [the missed payments] were due at the end with options that weren’t great.
“Now the options have really been expanded and improved. Unfortunately, that message — that you have options — is still not clear.”
