Skipping mortgage payments? Here’s what you need to know when it’s time to resume

Mortgage servicers took their sweet time last spring advising customers affected by the pandemic about their right to hit the pause button on making payments with no documentation required, and no penalty charged to get back on track.

Now that most of those borrowers are preparing to resume making payments, mortgage servicers are again facing criticism for not being straight with their customers about their options.

And that’s potentially troublesome for South Florida and Central Florida, where rates of mortgage borrowers allowed to skip payments through a process called forbearance exceed state and national averages and are disproportionately high among Black and Hispanic homeowners in low-income neighborhoods.

Because those borrowers typically have less equity to work with, consumer advocates say they will need to take the initiative to work out a payment resumption plan with their mortgage servicers — which include traditional banks and payment processors that aren’t banks. If they’re not satisfied with the answers they get, help is available from volunteer legal aid organizations and federally funded housing counselors.

“This is often very complicated stuff,” said Mark McArdle, assistant director of mortgage markets for the Consumer Financial Protection Bureau. “What is a deferral? What is a modification? What are term extensions? It’s important for borrowers to understand what is going on with their loans.”

Kim Henderson, president and CEO of Neighborhood Housing Services of South Florida, one of the area’s federally certified housing counseling providers with offices in Miami and Fort Lauderdale, said her organization hasn’t see an uptick in requests for help yet — probably because the Biden administration extended the forbearance period through Sept. 30 and the foreclosure moratorium through June 30.

“It’s coming, but not yet,” Henderson said. “We’re preparing. It’s one of those things that people won’t worry about until it hits them in the face that the party’s over.” When that happens, she says, her organization and numerous others will be ready to help, she said.

Complaints about mortgage servicers increasing

In a report released this week, the Consumer Financial Protection Bureau said in March it received the largest number of consumer complaints about mortgages since April 2018. Complaints mentioning forbearance or related terms reached their highest monthly average since March and April of 2020, when consumers seeking forbearance protection made available for borrowers of federally backed loans first began complaining about getting inaccurate information from their mortgage servicers. The report did not identify subjects of the most recent complaints.

Andrea Bopp Stark, an attorney at the nonprofit National Consumer Law Center, says some mortgage servicers are again providing confusing and contradictory information about borrowers’ options for resuming payments on federally backed loans. Some servicers of private market loans not subject to federal requirements are requiring borrowers to pay back missed payments in a lump sum or make monthly payments over a couple of years, she said.

While bound by the foreclosure moratorium, private-market lenders are not required to provide any affordable post-forbearance options, Stark said. She’s aware of one consumer who had to borrow $30,000 to get current and another who had to dip into his retirement account.

Meanwhile, some servicers of Federal Housing Administration loans aren’t properly offering to defer missed payments to the end of the loans or offering modifications that could lower borrowers’ monthly payments if they can’t afford to pay the pre-pandemic amount, she said.

The opportunity for the roughly 70% of borrowers with federally backed loans to suspend mortgage payments for up to a year was part of the first pandemic relief act passed by Congress and the president last March. In February, it was extended through September by the entities that control the loans, including Fannie Mae, Freddie Mac, the Department of Agriculture, the Federal Housing Administration and the Department of Housing and Urban Development.

During the national shutdown last spring, financially devastated Americans took advantage of the unprecedented opportunity. An estimated 6.5 million home loan borrowers have missed at least one payment since March, according to the Mortgage Bankers Association. By July, about 8.5% of U.S. borrowers were in forbearance programs.

More borrowers behind on payments in Central and South Florida

In South Florida and Central Florida, however, the percentage of homeowners in forbearance programs far exceeded the national rate.

Here, rates peaked in June, according to data collected by Black Knight, a Jacksonville-based financial data provider. Rates peaked in South Florida at 18.9% in Broward County, 22.1% in Miami-Dade County and 15.3% in Palm Beach County. In Central Florida, rates peaked at 20% in Osceola County, 15.1% in Orange County, 10.1% in Seminole County and 11.5% in Lake County.

The highest percentages of homeowners in forbearance were in ZIP codes with large numbers of Black and Hispanic borrowers. In Broward County’s 33068 zip code, which includes parts of North Lauderdale, Tamarac and Margate, 24.5% of borrowers were in forbearance in June while another 5.6% not in forbearance were more than 30 days past due on their payments. The ZIP code is 86.5% Hispanic and/or non-white and 62.9% low- to moderate income.

In Osceola County’s 34758 ZIP code near Kissimmee, the forbearance rate reached 23.8% in June. The ZIP code is 85.3% Hispanic and/or non-white and 57.6% low- to moderate income. Another 4.6% not in forbearance programs were more than 30 days past due.

Forbearance and delinquency rates have gradually fallen since the economy began to reopen last summer. By January, the most recent month for which data was available, 5.6% of borrowers in the U.S. were still behind on their payments. In Florida, the rate was 6.9%. But rates remained comparatively high in the tricounty metro area at 9.1% and 7.4% in the Orlando region, according to CoreLogic, a consumer information service based in Irvine, California.

Consumer protection bureau is watching

Federal authorities said they plan to look closely at how mortgage servicers manage their communications with borrowers with limited English proficiency.

In March, consumers reported experiencing communications issues about their forbearance plans and options available at the end of the forbearance periods, the Consumer Financial Protection Bureau report said. Some reported long delays in getting loan modifications to help them lower their monthly payments.

The bureau released its report about a month after issuing a bulletin warning mortgage servicers “to begin taking appropriate steps now to avoid a wave of avoidable foreclosures once borrowers begin exiting COVID-19 forbearance plans later this Fall.”

Mortgage servicers, the bulletin said, are expected to prepare for the anticipated increase in loans exiting forbearance programs as well as applications for relief from borrowers who are delinquent but not in a forbearance program.

It warned that the bureau would closely monitor mortgage servicers’ compliance with requirements to contact borrowers before their forbearance periods expire to give them time to apply for help, work with them to make sure they have all necessary documentation to obtain help, promptly respond to inquiries, and evaluate income fairly.

Also, the bureau said it will look carefully at how mortgage servicers manage communications with borrowers with limited English proficiency.

Options for borrowers of federally backed loans

About 70% of all borrowers have home loans backed by one of the federal entities. Those borrowers must be given a series of options appropriate to their financial situation. While details may differ depending on which entity backs the loan, borrowers generally will be asked if they can step up to one of these options:

• Can you repay the missed mortgage payments in a lump sum?

• If not, can you repay it in monthly installments over the next year or so?

• If not, can you resume paying the same amount you were paying before the pandemic?

• If yes, you can defer those missed payments to the end of the loan, either by extending the loan by the number of missed months or by making the sum of the missed payments due at the end of the loan. This is called a deferral.

• If you can’t pay the same amount, you can qualify for a loan modification that will lower your rates by reducing the interest rate and/or extending the length of the loan.

Stark said borrowers planning to exit forbearance, as well as those not in forbearance who have missed payments, need to take the initiative now — before the federal foreclosure moratorium expires on June 30 — to contact their mortgage servicers and inquire about their options.

With more than 2 million borrowers still in forbearance and planning to exit, mortgage servicers probably aren’t purposely spreading bad information, Stark said. “I think they’re bombarded and overwhelmed with the amount of forbearance and post-forbearance options. There are probably hundreds of thousands coming off forbearance every week.”

Borrowers who are among the 30% whose loans are privately backed and not federally backed should seek help from a housing counselor certified by the U.S. Department of Housing and Urban Development, a local legal aid department, or a private attorney if their servicer refuses to respond or provide affordable options, she said.

Henderson, of Neighborhood Housing Services of South Florida, said she expects further federal help to be announced to help delinquent borrowers avoid foreclosure. If none materializes, “then it boils down to good old fashioned self advocacy and negotiation,” she said.

But borrowers won’t have to go it alone. “We can be a third party. Borrowers can sign a paper to give us the ability to speak on their behalf. We can be on the phone when they call their servicer. We can negotiate for them, or with them, and help walk them through their options.”

Where to find help

HUD-certified housing counseling agencies can be found at consumerfinance.gov/find-a-housing-counselor. Enter your ZIP code to find one nearest you.

Free legal aid service providers in Florida can be found at FloridaLawHelp.org. To find services in other states, go to LawHelp.org.

To file a complaint about your mortgage servicer, go to the Consumer Financial Protection Bureau’s website: consumerfinance.gov/complaint.