Lew Sichelman

A key federal watchdog agency has warned companies that administer mortgages, either for themselves or on behalf of investors, that they must be prepared for the coming surge of borrowers seeking relief. 

Unprepared is unacceptable, said Dave Uejio, acting director of the Consumer Financial Protection Bureau. 

“There is a tidal wave of distressed homeowners who will need help in the coming months,” he said. 

Uejio’s message was directed at servicers – the companies that collect monthly payments from borrowers, pay their property taxes and homeowner’s insurance and send the proceeds to those who own the loans. Some lenders manage their own loans, but most use these third-party companies. 

But the 2.3 million borrowers who are still in active, federally mandated emergency mortgage relief programs should take heed, too. The day is rapidly approaching when they are going to be asked to start making their full house payments and start paying back what they owe. 

 “There is no time to waste, and no excuse for inaction. No one should be surprised by what is coming,” Uejio told servicers. 

How it Works 

After being extended several times, the federal foreclosure moratoriums are set to expire on June 30. But earlier this month, the CFPB proposed extending the freeze until the end of the year. The final rule won’t see the light of day until early June at the earliest, depending on the number of comments the bureau receives and what stakeholders have to say. 

But even if the moratorium is extended, it doesn’t mean buyers can stop making their payments.  

As of early April, 93 percent of all mortgages were current, but 4.7 percent were in a forbearance plan, according to the Mortgage Bankers Association. Some 1.8 million of those are already behind by 90 days or more, and 78 percent are in plans that have been extended beyond their original three-month period. 

For anyone struggling to keep up with their house payments, the first step – even before they actually fall behind – is to get on the horn with their servicer or reach out online, said Jane Mason of Clarifire, a company that automates customer service functions for lenders and servicers. Servicers are being told to be proactive in looking for borrowers in trouble, too. 

Asking for forbearance is as easy as raising your hand. All a buyer has to do is say that their household income has been negatively impacted by the pandemic. For most loans, no documentation is required – just the buyer’s word. Once the relief period ends, though, anyone seeking help will have to document their financial hardship. 

The CFPB’s website (consumerfinance.gov/housing) lays out the five steps troubled borrowers need to take. If you qualify, relief will be granted for three to six months. It can be extended for up to 18 months, in some cases, if you need more time. 

Servicers are being reminded they should contact borrowers before the end of their forbearance periods so they have time to apply for an extension. But more time won’t be granted automatically. They must request it. 

If a buyer has exited a forbearance plan previously, they can ask to enter into a new one if their circumstances warrant. But again, they have only until June 30 to ask. 

What’s Available? 

The CFPB has reminded servicers they must ensure that all homeowners have an opportunity to save their homes before foreclosure is initiated. The agency’s rules apply to all loans touched in one way or another by the federal government. That includes those purchased by Fannie Mae and Freddie Mac, as well as those insured by the Federal Housing Administration, guaranteed by the Veterans Administration and/or underwritten by the Agriculture Department. Most private lenders follow similar guidelines. 

Generally, four forbearance repayment options are available: 

• Repay. If a buyer can afford to add more to their regular monthly payment once you exit the program, they can make up for the payments they missed as you go along. 
• Defer. If a buyer can’t afford to increase their payments, the missed amount will be added to their loan balance. 
• Modify. If a buyer can’t resume regular payments, their loan can be extended or their interest rate could be lowered. That way, their payments may be lower, but it will take longer to pay off the mortgage. 
• Reinstate. The buyer makes up their missed payments all at once. But note: Lenders cannot require borrowers to make a lump-sum payment. The CFPB is telling buyers that, when offered only this option, to ask what other choices are available.  

To help determine which option is best for a borrower, servicers will ask if you can resume making payments, said Mason. They must evaluate the borrower’s income based not only on earnings, but also public assistance, child support, alimony or other sources. 

If there is no hope for returning to normal, the borrower’s next choice is between selling the home or giving it back to their lender. Otherwise, unfortunately, a foreclosure is in their future. 

Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at lsichelman@aol.com.