How Mortgage Relief Is Supposed to Work

Scott Medintz

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It's a classic good news, bad news, good news story. 

In early April, many people needing help paying their mortgage because of financial woes caused by the coronavirus crisis were heartened to learn that they could hold off payments for a year without any late fees or extra charges, thanks to the recently passed $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act. 

But when they contacted their mortgage companies to avail themselves of the provision, they were told about a big catch: They’d have to make up any skipped payments, in full, as soon as the forbearance period was up.  

Many wrote to Consumer Reports to express their outrage and fear. 

“How would I suddenly have three months' worth of payments stockpiled to pay back in full by then?” wrote Alison Byrne of Wall Township, N.J., after agreeing to repay her servicer, a company called Mr. Cooper, in full after 90 days. "What a racket! It's not helpful in the least. How dare they?”

“If one had that money, there would be no need for any kind of relief,” Denise Pawlukiewicz of Bay Village, Ohio, wrote of her servicer’s balloon-freighted four-month forbearance offer. “Give with one hand, take away with the other.”

“It’s just kicking the can down the road, adding to an already stressful time,” wrote Maryland healthcare worker Antonio Calderon after being told that he’d have to come up with $4,000 in three months, even though his work hours had been slashed and his wife, a nurse, was on the front lines of the COVID crisis. 

But the message these consumers were hearing—that they’d owe a lump-sum payment at the end of the forbearance period—was incorrect. The vast majority of homeowners who accept a COVID-related forbearance will be offered less painful ways to get current on their home loans.

Mangled Messaging

As early as April 8, Fannie Mae and Freddie Mac—which combined own the majority of U.S. mortgages and therefore determine how servicers wind down most forbearances—had issued guidance to servicers listing a range of “workout options” for consumers to catch up on missed payments. 

Yet as was made clear by the dozens of consumers who wrote to CR after that date, many were still being misinformed about their options. And a new report from the Department of Housing and Urban Development Office of Inspector General, based on an April 17 study of websites of the 30 top servicers, found that several servicers “gave the impression that lump-sum payments would be required at the end of the forbearance period.” 

On April 23, Consumer Reports advocates wrote to the top mortgage servicers, calling on them to ensure that "consumers who need relief are able to access it and that your staff are trained to make clear to borrowers the range of post-forbearance repayment options in keeping with your organization's policies and federal guidance."

Finally, on April 27, Fannie Mae and Freddie Mac directly addressed the confusion. “We want every homeowner who is struggling because of this pandemic to know they have mortgage options. We do not require a homeowner to repay missed payments all at once at the end of the forbearance plan, unless they choose to do so,” wrote Fannie Mae CEO Hugh Frater in a press release. Freddie Mac issued a similar statement.

We may never know why so many consumers were—and perhaps still are—being misinformed. Lisa Sitkin, senior staff attorney at the National Housing Law Project, suspects a combination of factors, including differing federal and investor guidelines, poor internal communication by the servicing companies, and a longstanding tendency for those companies to discourage forbearance. (Servicers, after all, are on the hook to pay mortgage investors even if the borrowers don’t make their payments.)

But the fact that so many consumers were given the wrong information about repayment options could itself cause financial problems for them. If people who needed forbearances declined to take them because they were told the wrong terms, “they may still miss payments, meaning they could be headed toward foreclosure,” Sitkin says. The poor communication undercut a key purpose of providing these forbearance plans in the first place, she adds: “Reducing people's stress and anxiety at a difficult time.” 

What Are Your Options?

Again, to be clear, most homeowners who accept forbearance will ultimately be offered an alternative repayment plan that does not require a large lump-sum payment. Per Fannie and Freddie guidance, servicers of federally backed mortgages are instructed to contact borrowers around 30 days before their forbearance ends to determine an appropriate “workout option.”  

Depending on the borrower’s financial situation, such options will likely include simply adding the missed payments to the end of the mortgage, which many consumer advocates believe to be the best option for many consumers who can afford to restart their monthly payment. “It’s the simplest, cleanest way to do it, for everyone involved,” Sitkin says. 

Others will be asked to catch up to the original payment schedule by resuming their full monthly payments and making modest extra payments over a period of, say, one or two years. 

Borrowers who are unable to resume full payments, meanwhile, could be required to go through a formal loan modification process, where their payments are lowered and the term extended further into the future. 

Those unable to pay anything going forward, unfortunately, may lose their homes to foreclosure. 

Keep in mind that these guidelines, like the forbearance provisions of the CARES Act, apply only to federally backed mortgages. (If you aren’t sure if that includes your mortgage, read our article How to Get Help With Your Mortgage During the Coronavirus Pandemic or call your servicer.) 

And it remains true that if you don’t anticipate a substantial loss of income during the COVID-19 pandemic, you should probably pay your mortgage as usual. 

On the positive side, some servicers seem to have done a better job of communicating with borrowers all along. 

“We don’t want you up to your ears.” That’s what Danny Chisholm, a self-employed personal trainer and massage therapist in Chicago, says he was told when he called his servicer, Flagstar Bank, in mid-March. 

He was sent to a dedicated website, where he agreed to a three-month forbearance and was immediately informed that he’d have several ways to get current afterwards—including adding the missed payments to the end of his 15-year mortgage. 

“I was like, ‘Thank God,’” he says. “I’d heard stories of people waiting eight hours on the phone. But after five minutes there was nothing left to be done.” 



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