Lenders are giving borrowers a break on their loans — and then what?

WASHINGTON » An Arizona couple can no longer afford their monthly mortgage payment, so they did what housing experts recommend after being laid off or losing work because of the coronavirus. They contacted their loan servicer to talk about their options. They were told they could miss payments for three months. Then came the catch.

All of their back payments would need to be paid in a lump sum once the three months were over.

“We would have to accumulate over $5,200,” the couple wrote in an email. “If by some miracle we were able to come up with that money, another mortgage payment of $1,300 would be due at the same time.”

Mike and his wife, who asked that their last name not be used, live in Southern Maryland and run a photo-booth rental business. The spring and summer are typically their busiest times of the year, filled with proms and weddings. But such events are now prohibited to help prevent the spread of COVID-19.

“We were looking at this being a breakout year,” the couple said in an interview.

The couple managed to make April’s mortgage payment, but they’ll struggle in the months to come. Their lender gave them a 90-day forbearance on their mortgage, which is backed by the federal Department of Veterans Affairs. The forbearance allows them to pause their mortgage payments for three months. But under the agreement, they will have to come up with $4,800 at the end of that span.

“How are we going to make this payment at the end of 90 days if we’re all locked in?” they asked.

Gail, like so many other readers, recounted a similar story. Her lender is a major credit union. At the end of Gail’s forbearance, she’ll owe all four months, “making my payment a little less than $6,000,” she wrote.

“It’s just absurd that anyone could think that this would be the appropriate thing to ask of people who are in this situation that so many people are in now. It’s astonishing to me,” said Lisa Sitkin, a senior staff attorney for the National Housing Law Project, a nonprofit legal advocacy center.

We’ve been here before. And it didn’t end so well for a lot of borrowers.

“The 2008 Great Recession exposed major flaws in the U.S. mortgage-servicing infrastructure,” wrote researchers at the Urban Institute’s Housing Finance Policy Center in a recent blog post.

In the last recession, the Urban Institute notes, the federal government eventually stepped in with programs that provided some standardization of assistance. Many private lenders copied the government’s relief guidance. The result was a menu of foreclosure alternatives that could be implemented on a massive scale.

But “the economic downturn resulting from COVID-19 will be the first time these enhancements are tested in real time,” the researchers wrote. “The question is whether they are adequate and, if not, what more needs to be done to improve them.”

Forbearance requests increased by 1,270% between the week of March 2 and the week of March 16, and another 1,896% between the week of March 16 and the week of March 30, according to the Mortgage Bankers Association.

As part of the recent $2 trillion stimulus package, collectively titled the Coronavirus Aid, Relief, and Economic Security (CARES) Act, homeowners were provided with two types of protection.

One is a foreclosure moratorium. Your lender or loan servicer can’t begin or proceed with a foreclosure for 60 days, a moratorium that started on March 18.

If you’re experiencing financial hardship because of the coronavirus pandemic, the CARES Act gives you the right to ask for an initial forbearance of up to 180 days. If you need additional relief, you are entitled to an extension for another 180 days. Interest still accrues, but fees and penalties are waived.

To qualify for the forbearance, your loan must be federally owned or backed by one of these federal agencies or entities: Fannie Mae, Freddie Mac, Department of Housing and Urban Development (HUD), Federal Housing Administration (FHA), Department of Agriculture (USDA direct and guaranteed loans) or Department of Veteran Affairs (VA loans).

Despite the federal promise of extended relief, many lenders are proceeding with the shorter 90-day forbearance, worrying people that foreclosure proceedings might start if they can’t pay up when the 90 days are over.

Then there are folks with mortgages that aren’t covered by the CARES Act because the loans are not backed by the federal government. Investors who own these mortgages get to set the terms of any assistance.

For now, Sitkin says, take what your mortgage lender is offering. Later on, if you’re still struggling and fear you cannot make a hefty lump-sum payment, here are some options that might be available by the time your forbearance ends.

• A loan modification. This option would change the terms of your loan, perhaps even lowering your monthly payment. Or, your loan could be recalculated and the arrears added to the loan balance, which might make your monthly payments go up.

• A repayment plan. You would be allowed to spread out your past-due payments. The repayments would be added to your current mortgage balance.

• A loan extension. Your delinquent balance would be added to the back end of your loan. The past-due payments would effectively extend the term of your loan.

Fear is overwhelmingly present when I talk to homeowners about their financial situation. The forbearances help but only push the problem down the road.

However long this crisis lasts, it’s vital that lenders provide borrowers with a clear and reasonable path to repayment.