What Can Go Wrong After Mortgage Forbearance?
Forbearance Time Bomb?
There’s a storm brewing right now, and it’s not COVID-19. According to analytics firm Black Knight, more than 3.4 million homeowners are in forbearance as of Thursday, April 30th, 2020.
This represents just over 6% of all homeowners in the United States of America. 3.4 million people are a lot of people to give good customer service to!
When you introduce the accelerated timeline imposed by COIVD, it’s not difficult for me to put myself in the shoes of the servicers and lenders and see this as a ticking time bomb. This becomes a ticking time bomb when forbearance reinstatement notifications start hitting emails and mailboxes.
Millions of homeowners are going to scramble to secure repayment plans and preserve credit scores as maybe millions of homeowners hit the “30-day notice” mark of a 90-day forbearance period.
Loan servicers are going to need to hire a lot of new people over the next 60 days as the first wave of forbearances is going to hit. This sounds a lot like the challenges that servicers had with staffing and backlog after the real estate crash of 2008.
After the real estate crash of 2008, we began publishing an updated guide to buying a home after bankruptcy, short sale, foreclosure, or deed in lieu. For almost 10 years now, we have helped thousands of consumers navigate life during and after financial hardship.
The COVID-19 crisis has impacted millions of Americans. When it was announced that forbearance was the vehicle for giving financially impacted homeowners mortgage payment relief, we built a resource specifically to help homeowners find information and share their experiences with forbearance.
ForbearanceReport.com is a consumer protection project to bring information, awareness, and professional advice to homeowners seeking information about forbearance and mortgage payment relief options during this crisis.
What Homeowners Are Saying
I am not surprised by the experiences that homeowners are having. This is the entire reason we created the Forbearance Report. Here are just a few of the comments we’re getting on ForbearanceReport.com:
Rashaad – 05/01/2020 – Freedom Mortgage Coronavirus Forbearance Information
So a couple of weeks ago, regarding a payment issue, after that was resolved. I simply asked a question on how the forbearance system worked, and what were the options, then the service rep. told me to hold the line, and he would transfer me. I told I didn’t want it, just asking questions on it work. He gave me a brief description then, and I told him I wasn’t interested.
A few days later I go online to make sure the payment issue was properly taken care of, and my account tells me I am in loss mitigation. I called back, and advised them of this error, and I was told it would be taken care of ASAP. It’s been over a week and my account is still in loss mitigation, (2nd of May). I have been told a company rep. that wasn’t my fault and that it would be removed from my account and will not affect my credit.
Please be careful when asking about the forbearance program, otherwise, you might be automatically enrolled in the program.
Etsy – 05/01/2020 – Shellpoint Mortgage Servicing Coronavirus Forbearance Information
I applied and they are requesting bank statements, paystubs, budgets, etc. Has anyone else had to do this?
Will – 04/29/2020 – AmeriHome Mortgage Coronavirus Mortgage Forbearance Information
Update 4/21 – I called AmeriHome again about options. The only change is that now they are offering 6 months forbearance if you ask. Also, I asked about deferment to the end of the loan. The rep indicated that currently, deferment is not an option. However, that may change depending on investor guidelines(for me Freddie Mac). Per the Freddie Mac website, they are scheduled to release a new 2 months deferment option for homeowners experiencing a temporary hardship in early July.
Paul – 04/24/2020 – AimLoan.com Coronavirus Mortgage Forbearance Information
In forbearance now with aim loan, I just got a call from one of their loan officers “threatening” that my credit may be affected by the forbearance and make sure I knew that before going through with the forbearance. I wonder if this is a scare tactic? but everything else I’m reading says credit won’t be affected. Anyone else have this call?
Mario – 04/24/2020 – SPS Servicing Coronavirus Mortgage Forbearance Information
How does SPS service expect me to pay a balloon payment if I can’t make the monthly payment?
What Could Go Wrong?
I think any challenges with mortgage forbearance are going to come from the unintended consequences of good intentions. It is clearly stated in the forbearance guidelines in the CARES Act that mortgage forbearance is available to homeowners that are experiencing challenges due to COVID-19.
Here’s the language they use:
During the covered period, a borrower with a Federally backed mortgage loan experiencing financial hardship due, directly or indirectly, to the COVID–19 emergency may request a forbearance on the Federally backed mortgage loan, regardless of delinquency status, by—
(A) submitting a request to the borrower’s servicer; and
(B) affirming that the borrower is experiencing financial hardship during the COVID–19 emergency.
(B) is what scares me. This part of the bill has been affectionately called the “honor system”.
The problem with removing all hurdles to going into forbearance is that we have not seen, nor are we likely to see a standard definition for hardship yet, which may leave that definition open to interpretation.
The worst thing that can happen is that the reinstatement options for paying back your skipped payments may be limited by your ability to document your hardship.
Who is going to define the extent of financial hardship required for you to be considered impacted?
I know there are many families that have been truly financially hurt during the lockdown, and I also know that there are many families that went into forbearance because they were “afraid” they would experience significant financial hardship.
Here’s a hypothetical scenario that could happen:
- Your family is afraid of a loss of income due to CORONA-19
- Forbearance is requested – box checked “affirming” financial hardship (honor system)
- Servicer contacts you about paying back skipped payments – asks for your proof of hardship
- Your income ended up fluctuating a little bit, but less than 10% from normal
- Servicer determines their policy is that a 20% drop in income is considered a hardship
- Your repayment options may be limited if you don’t qualify as having a hardship
Although “guidance” is offered by Fannie, Freddie, FHFA, CFPB, HUD, and others, there is still the opportunity for interpretation by the staff of the servicer you’re working with. Now put a hundred cases on the loss mitigation customer service person and that’s a recipe for a log jam.
I’m not trying to be a doggy downer here. I am cautiously optimistic, but I was really close to the challenges coming out of the 2008 crash, and there are too many parallels to ignore.
At the same time, I am preparing for the worst, and when it doesn’t happen, I’m fine being that person that was prepared but didn’t need to be.
The moral of this story is that we still have so many unanswered questions. We have important questions that need to be answered. We have answers that need to be clarified. The more ambiguous the language, the more likely that interpretations will vary.
Our Best Advice
What we can do as individuals is educate and empower ourselves, and make educated decisions about our options, based on facts and contracts. Here a quick tick list of our best advice:
- Get everything in writing.
- Read your servicers “Beware of Scams” advice on their website, they will tell you what they will NEVER do.
- Work out your reinstatement options before you agree to forbearance.
- Ask your servicer what documentation is required for a reinstatement repayment and avoid paying one lump sum.
- If you do go into forbearance and you can make your payments – save those payments!
Experienced & Expert Advice
Mortgage forbearance, deferment, and mortgage payment relief options are terms that are a part of many homeowner conversations today as we navigate the fallout from the COVID-19 pandemic.
FindMyWayHome has been a resource for both homeowners and homebuyers that have experienced financial hardship since the great real estate crash of 2008.
This website was built by independent mortgage brokers. My partner and I have been in the mortgage business for over 20 years each. We maintain this website to give consumers an opportunity to avoid high-pressure salespeople and get expert advice anonymously.
We published “When Can I Qualify for a Mortgage After Bankruptcy, Short Sale, Foreclosure or DIL” in February 2011, and have been helping folks get back on the path to homeownership after a significant financial hardship ever since. We have answered more than 2,300 questions from homeowners and homebuyers on that one article alone!
For over 10 years now, we have been helping people make more informed and educated decisions about homeownership, and if you find yourself in a challenging place, we’re here to help you recover as quickly as possible and get back on the path to homeownership.