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More than 4 million homeowners are now delaying their monthly mortgage payments as part of both government and private lender relief programs – but some have been put into forbearance by mistake and are having a hard time getting out.
While the programs cannot, by law, hurt their credit scores, they can keep borrowers from refinancing their loans or procuring new mortgages.
In a rush to help consumers who have been impacted financially by the coronavirus pandemic, the government authorized a massive mortgage bailout under the CARES Act. It specifically states that servicers should not ask any questions of their borrowers, nor can they require any documentation of hardship in order to accommodate them.
Borrowers can simply call their servicers or go online and be granted an immediate 90-day payment delay. That rush to relief resulted in quick help for borrowers but also in a lot of mistakes.
Some borrowers’ inquires were misunderstood, and some servicers, swamped with hundreds of thousands of calls, just put the borrowers into the program. That’s precisely what happened to a Massachusetts borrower who called his servicer to get information and later found out his mortgage was in forbearance.
The borrower, who did not wish to be identified, said he sent an email to Wells Fargo, which services his loan, in early March because he was concerned that his wife, a teacher, might no longer be paid.
“I was asking to be educated on what my options were. Someone put me in this and never told me what it was,” said the borrower, who declined to be named due to privacy concerns. “No one ever used the term forbearance, and the email specifically said there would be no negative impact on my credit report.”
It turned out his wife did not lose her salary, so they could continue paying their mortgage.
“I go to make my April payment, and it tells me that I can’t. There is not an eligible account to make the payment on,” he said.
After multiple calls, the borrower was able to start making payments again and was told the loan was “fine,” and there must be “a website issue.”
Then he decided to refinance, hoping to take advantage of record low mortgage rates. His mortgage broker informed him that the loan was in forbearance, and he was therefore unable to refinance. The borrower again contacted Wells Fargo and asked to be removed from forbearance. That was April 23, and he says his loan is still listed as in forbearance.
While there was no hit to his credit score, the note on his credit report saying the loan is in forbearance makes it impossible for him to refinance. Fannie Mae and Freddie Mac, which, along with the Federal Housing Administration and the Department of Veterans Affairs, fund or insure the vast majority of mortgages from lenders, do not allow borrowers with a loan in forbearance to either refinance or obtain a new loan until one year after the loan payments are up to date again.
“Some consumers that made calls to inquire were misunderstood and put into forbearance,” said Debra Still, CEO of Pulte Mortgage, a division of Pulte Group, one of the nation’s largest homebuilders. “Some continued to make their payments and when a credit report is done for a consumer in forbearance, the loan still shows as current, but there is a note on the credit report that says the borrower is still in forbearance.”
Still has been vocal in the industry, trying to get the Federal Housing Finance Agency, which regulates Fannie and Freddie, to help lenders understand how to treat this unprecedented wave of borrowers in forbearance.
“My inquiry has been around formal guidance, so that we know how to lend properly to some of these consumers who never needed their forbearance and want to buy a new home,” said Still. “We want to keep the economy going, we want to be selling homes. Let’s not put unnecessary barriers in front of future homeowners.”
It also puts barriers in front of homeowners who could really benefit now from refinancing and saving on their monthly payments. Servicers are swamped with those requests as well. Applications to refinance a home loan are currently up more than 200% from a year ago.
“We want customers who need assistance due to COVID-19 to be able to request and receive a payment suspension quickly and easily. If a customer no longer needs that assistance, we will be happy to remove them from the payment suspension,” said Tom Goyda, a Wells Fargo spokesman. “The vast majority of customers who have asked to be removed from a forbearance initially requested a payment suspension but later determined that they would prefer to continue making their payments.”
Since early March, complaints to the Consumer Financial Protection Bureau have soared, with mortgage complaints leading the charge. Roughly 60% of those are categorized as “struggling to pay mortgage.” A scan of some individual complaints show borrowers getting “form letter” email responses from servicers that do not address specific questions.
One example:
I obtained forbearance during the COVID-19 quarantine from Wells Fargo. I was told that I would be able to make payments as a result of asking for a short-term payment suspension; I have the call recorded and am willing to submit the call as evidence. Now I am unable to make a payment despite being told by an Agent of Wells Fargo that I would be able to make a payment.
The CFPB and the Mortgage Bankers Association both have web pages with information about how to apply for forbearance and what the options are for borrowers.
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