Borrowers Seeking Mortgage Forbearance Hit Ambiguity, Snafus
March 20, 2020
Frustration seeps through long threads on social media channels populated with mortgage borrowers unnerved by their inability to reach lenders over the phone and displeased with the forbearance assistance they are offered once someone answers their calls.
Late last month, as a response to the economic fallout of the coronavirus, the CARES Act postulated that mortgage borrowers with federally backed loans can seek forbearance for up to six months, at the end of which they can get another half a year of suspended payments.
As nearly 10 million Americans filed for unemployment benefits in the second half of March, the start of the new month, when bills usually come due, caught lenders somewhat unprepared to handle the influx of mortgage assistance requests.
When Morgan Davis, a furloughed clothing designer, called Wells Fargo to ask for help with her FHA loan about two weeks ago, she was offered to suspend three payments without penalty – three months of forbearance.
“But at the end of those three months, all my mortgage payments would be due at once,” Davis said. “I told [the bank representative] that didn’t sound very helpful. I explained I had only called to see if there was a way for me to hold onto more of my cash while I wasn’t getting paid.
“I told him I might as well just keep paying my mortgage on time. He said he could activate [forbearance] as a backup plan just in case I needed to delay a payment. I agreed.”
A rocky start to forbearance plans
Many servicers of mortgages secured by Freddie Mac, Fannie Mae or several government agencies have recently sent out emails to their customers, informing them of 90-day forbearance plans. Borrowers with private loans may also qualify for help, although the terms are likely to differ.
On April 1, an email from Wells Fargo landed in this reporter’s inbox too. In part, it read, “If you’re unable to make your payment due to COVID-19 related hardships, we’re offering a 90-day payment suspension.”
The correspondence left it unclear that those 90 days should be considered an initial period, which financially strained borrowers can later stretch up to a full year in accordance with the CARES Act. In the last several days, Twitter TWTR filled with comments from customers of major lenders that underline this lack of clarity.
“I contacted Bank of America BAC for forbearance and they granted me a 3-month program; at its completion July 1, I will have to pay them $12,000 [or the] equivalent of [four] mortgage payments,” a person wrote on the social media platform. “If I can’t pay it now, where am I going to get 4 months’ worth. I’m glad [you are] looking out for us.”
Another person tweeted, “My mortgage [company], Mr. Cooper, offers a 3-6 month forbearance. I would then have to either pay the unpaid months in one lump sum or take a loan where I would have 2-6 months to pay it back but it will be reported to the credit bureau monthly until it is paid off. So no help!”
In the customer email this reporter received from Wells Fargo, the bank also said it is still parsing through the flurry of economic relief rules the coronavirus pandemic has spurred.
“Congress has passed a legislative relief package to help consumers, businesses, and communities impacted by COVID-19,” it stated. “We’re actively working to understand how we can use the new programs to help our customers.”
When reached for comment, Wells Fargo stated: “We encourage customers to continue making their payments if they can but are granting an immediate three-month payment suspension for any Wells Fargo Home Lending mortgage or home equity customer who requests assistance. For customers who contact us to take advantage of a payment suspension, we won’t report past-due status to the consumer reporting agencies or charge late fees during the suspension period.
Customers who reach us by telephone will get an immediate verbal confirmation of their three-month payment suspension. Because our contact centers are experiencing significant call volumes, we encourage mortgage customers to log into their account on WellsFargo.com WFC and click on the banner in the mortgage account, follow the easy steps to submit request for payment relief, and receive immediate confirmation. In either case, customers will receive a confirmation letter within 7-10 days after our initial response.”
(Bank of America has not responded to a request for comment at the time of publication. If and when it does, the story will be updated.)
Terms of forbearance
Meanwhile, the Federal Housing Finance Agency (FHFA) and the mortgage-buying enterprises Fannie Mae and Freddie Mac, which it regulates, are issuing guidelines and clarifications for lenders. Both Fannie Mae and Freddie Mac have published extensive bulletins detailing how servicers should handle forbearance requests.
Several points in these multi-page documents – that related to borrowers with Fannie Mae or Freddie Mac-backed mortgages, or about 45% of all mortgage holders – are important to note:
- Lenders are not to report forborne payments to the credit bureaus, which means that borrowers who request forbearance will not see their credit scores suffer. However, if they do not contact their loan servicer to start a forbearance plan and miss a payment, the lender is to report that lapse to the credit bureaus.
- Borrowers need not provide any documentation to verify their financial hardship.
- Assistance is available to owners of both primary and secondary residences as well as investment properties.
- After the initial suspension period expires, borrowers must work with lenders to extend the forbearance or establish a repayment plan.
The same principles largely apply for FHA loans, which comprise about 12% of the mortgage market.
Forborne amounts typically become current at the end of forbearance. Clients who have deferral plans, on the other hand, usually have to pay at the end of the loan’s life or when they sell the property.
Currently, repayment options appear quite flexible. Depending on borrowers’ unique circumstances, they can range from lump-sum repayments, the addition of the skipped months to the term of the mortgage, to a loan conversion (from a 30-year to a 40-year mortgage, for instance) that should lower monthly costs.
Furthermore, FHA loan holders can also convert the forborne amounts into an “interest-free subordinate mortgage” that does not require repayment until after the settlement of their first loan.
Borrowers dissatisfied with the repayment conditions offered by their servicers (or dealing with uncooperative lenders) can log a claim with the enterprise, Fannie Mae or Freddie Mac, that owns their mortgage in order to potentially find different solutions. Those who are unsure who owns their home loan, can utilize online lookup tools.
Davis, the furloughed customer of Wells Fargo, attempted to pay her mortgage online a few days after her initial conversation with a bank representative, who supposedly enacted a forbearance plan as a backup. She couldn’t do it.
“My Wells Fargo checking and savings accounts are ineligible to pay my Wells Fargo mortgage now,” she said. “No one knows why.”
She drove to a local branch to pay in person. Then, she called customer service. “I was told by one person on the phone my home was accidentally coded as a foreclosure, which sent me into a downward spiral of desperately trying to reach Wells Fargo,” she says, adding she has not been able to confirm this with other representatives.
“I eventually resorted to tweeting like a crazy person to get someone’s attention,” Davis says. “Wells Fargo never did reach out on that platform. I have not been able to reach the mortgage department at all by phone. I’ve waited on hold for up to seven hours a day—eventually gave up.”
She also received a letter confirming the receipt of her loan modification request, which she says she has not made. Yesterday, Wells Fargo contacted her.
“They are sending me a letter to apologize in writing and confirm my home is not coded for foreclosure,” she says. “The issue of my accounts being ineligible is under investigation and they will get back to me by April 14th at the latest. I now have a direct extension to call to make future payments if this doesn’t get figured out in time for my next payment.”
Having gone through that ordeal – “it’s not a comfort to seek their offer of forbearance,” Davis says – she is determined to keep her home. She has seen both of her parents lose residences during the Great Recession. But now, she worries how she might be treated in the future should she again seek mortgage assistance.