As part of its $2 trillion coronavirus aid package, the federal government cleared the way for struggling homeowners to get mortgage relief from lenders. But for some homeowners, the aid may have come too easily.
Over the last two months, homeowners have swarmed servicers’ web sites and phone lines in search of information about mortgage forbearances, which allow them to suspend mortgage payments for up to a year. And now there are more than 4 million homeowners in forbearance plans, according to the Mortgage Banker’s Association.
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But some homeowners were put into forbearance programs they did not want – and that has caused problems. Being in forbearance, even if the homeowner is making regular payments, has prohibited some from taking out new home loans or refinancing their existing mortgages.
“I never asked to be in the program,” said D.J. Stavropoulos, a real estate agent in Atlanta who said he called his mortgage servicer, Wells Fargo, in March just to get information about how a forbearance would work.
Nonetheless, at the beginning of May, he received a letter from Wells Fargo confirming that his loan was in forbearance.
“I was alarmed they were doing this behind my back,” Stavropoulos said. “I think the average person is as confused as I was and may be surprised to find they are in forbearance and not know it.”
But Tom Goyda, a Wells Fargo consumer lending spokesperson, said that is not the intention at Wells Fargo.
“Just asking about forbearance should not result in a forbearance being applied,” said Goyda.
“We want customers who need assistance due to Covid-19 to be able to request and receive a payment suspension quickly and easily,” he said. “If a customer no longer needs that assistance, we will be happy to remove them from the payment suspension.”
The fast-moving forbearance process
The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, sought to fast-track relief to homeowners with federally backed loans by allowing servicers to grant forbearance with no documentation required. Servicers of conventional loans also offered similar forbearance.
But the relief bill came about so quickly and the servicers were moving so fast trying to handle millions of calls, there was a lot of confusion, said Mark Moore, branch manager of Fairway Independent Mortgage Corporation in Atlanta.
“In the rush to push through the CARES Act, they included forbearance, which is great for the people who need it,” said Moore. “But they didn’t put in a test. You don’t have to prove need. Anyone who wants forbearance, can get forbearance.”
Moore thinks there should have been more restrictions placed on who could qualify and what the terms of the plans meant.
“I would have loved to see more clarity that this is for people who have lost their jobs due to Covid, not for people who want a payment holiday,” he said. “And more clarity around what will show up on your credit report and how you can refinance or get a new loan once you’re in forbearance.”
That lack of clarity has led to a rash of consumer confusion and complaints.
Complaints filed with the Consumer Financial Protection Bureau have risen dramatically since the outbreak, and include several from homeowners who said they were placed in forbearance without requesting it, according to nonprofit advocacy U.S. Public Interest Research Group.
“Oversight of the forbearance process is woefully inadequate, so it’s unsurprising that the biggest coronavirus problems are related to mortgages,” said Mike Litt, the consumer campaign director at U.S. PIRG.
One person who filed a complaint with CFPB said: “I contacted my mortgage servicer … for informational purposes only, to see what programs they were offering during the Covid 19 pandemic. … I stated I did NOT want to be on a forbearance plan.”
The homeowner said they were placed in forbearance anyway and when they contacted the servicer to be removed from the forbearance program, they were told it would be canceled. But it was not.
“The stress of this situation has affected my physical and mental well-being, strained my personal relationships as well as the ability to do my job. I have spent hours on the phone, and writing letters … I wonder, how many others is this happening to?” the homeowner wrote.
Impact of forbearance on refinancing or getting a new loan
Servicers that issue loans, like Wells Fargo, say they make it clear to homeowners who go into forbearance that they will be ineligible for a new home loan or to refinance an existing home loan until their payment suspension plan ends.
On Tuesday, Freddie Mac and Fannie Mae provided guidance on this. The mortgage giants issued a clarification of the requirements for homeowners impacted by coronavirus who are in forbearance or recently out of forbearance, enabling some to still get new mortgages or refinance, according to the Federal Housing Finance Agency.
Borrowers who are technically in forbearance but continuing to make payments are eligible to refinance or buy a new home if they are current on their mortgage, said Federal Housing Finance Agency director Mark Calabria. Borrowers who have suspended payments will be eligible to refinance or buy a new home three months after their forbearance ends. They will need to have made three consecutive payments under their repayment plan, payment deferral option or loan modification to be able to get a new loan.
The action allows homeowners to access record low mortgage rates and reduce their monthly payments, said Calabria. This will keep the mortgage market moving as efficiently as possible, he said.
Impact of an unwanted forbearance on your credit score
Forbearance should not negatively impact your credit score. According to the CARES Act, if you are in forbearance because of the pandemic, you are to be reported as current on your payments.
But lenders can add a special comment code noting your account is in forbearance on the reports they send to credit reporting agencies, said Francis Creighton, the Consumer Data Industry Association’s president and CEO.
Can a borrower see these codes?
“It depends on how a lender reports forbearance,” said Creighton. “Consumers should ask their lender how they plan to report any accounts in forbearance to the credit reporting agencies.”
Consumers can pull their credit report on a weekly basis through April 2021 at AnnualCreditReport.com for free and monitor their credit.
“Credit scores are dynamic and weigh many different factors,” said Creighton. “While you may be reported as current, other factors could result in score changes, including how much credit you’re using or you might have opened other accounts which could impact the score – in some cases positively and others negatively.”
If you have been wrongly listed as being in forbearance, said Creighton, you should dispute that directly with the lender or by contacting the credit bureau that shows the incorrect information.