Be careful if skipping mortgage payments

Relief is available, but misinformation rampant

Because of widespread uncertainty and lack of clear guidance about mortgage relief options, home loan borrowers will need to be on guard against scams and profiteering if they decide to skip payments because of COVID-19-related financial hardship.

Misinformation is rampant, and even mortgage industry experts and consumer watchdogs admit that they are unsure about possible consequences for borrowers who seek help promised by the government.

Thanks to federal coronavirus relief measures, consumers with federally backed mortgage loans can access unprecedented relief.

They can skip up to 12 months

of payments by securing what’s called a forbearance. Afterward, they can choose to repay the missed payments on top of a year’s worth of upcoming payments, shift the missed payments to the end of their loan or lengthen the loan and lower their payment.

That relief is guaranteed in federal law, and by guidance issued to mortgage loan servicers by federal guarantors that own a combined 70 percent of all U.S. home loans — Fannie Mae, Freddie Mac, the Federal Housing Administration, the U.S. Department of Agriculture and the Veterans Administration.

Yet consumers have flooded social media pages with complaints that their loan servicers said they could skip payments for only three months and must repay all skipped payments in a lump sum on the fourth month. Some say they’re worried about signing up for the relief, mindful of how victims of the 2008 housing crash were exploited when they sought promised modifications and refinancing.

Mortgage loan servicers have been singled out over the past week by the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, and by the Office of Inspector General that oversees the FHA for providing misleading and incomplete information about the relief measures.

In a review of information on websites of 30 top FHA loan servicers, investigators found numerous examples of “incomplete, inconsistent, dated and unclear guidance” to borrowers. One of the servicers’ sites “did not mention forbearance as an option, and instead listed a variety of other options — such as refinancing or a short sale — as available options at this time,” the inspector general’s report stated.

Confusion doesn’t end with verification of consumers’ forbearance and repayment options, however.

Mortgage lending experts are torn over whether consumers who opt for loan modifications are protected against being charged fees or higher interest rates when it comes time to work out repayment options. What’s also unsettled is whether getting a modification will show up as a stain on their credit report.

An official at one of the nation’s largest banks, for example, said that any postforbearance loan modifications that will be offered to borrowers of governmentbacked loans will require extensive paperwork, including income and tax documentation. The official, who asked not to be identified, said mortgage loan specialists at his company said that because those modifications must be reported to credit bureaus, they could potentially reduce borrowers’ credit scores and be seen as red flags by future potential

lenders.

However, Sara Sanghas, a lending administrator for the Mortgage Bankers Association, an industry trade group, said she believes that language in federal coronavirus relief legislation enacted in late March — which bars negative credit reporting during the forbearance period — also protects borrowers who get loan modifications as long as they fulfill terms of those plans.

Diane Thompson, an attorney at the National Consumer Law Center, said that borrowers whose modifications are completed within 120 days after the end of the current of national emergency, whenever that is, will be reported to the credit bureaus as current. “There could be negative reporting about the modification if it happens after the covered period,” she said.

Don’t be misled

Whether servicers will adhere to restrictions and guidelines intended to protect borrowers who seek help during the disaster remains to be seen. Judging by the number of misleading and inaccurate interpretations of forbearance and repayment requirements uncovered by the FHA’s inspector general, borrowers will have to educate themselves and ask for verification in writing of all options presented to them.

That confusion also presents prime opportunities for scammers, experts are warning.

Gerald Solomon, a Boynton Beach-based attorney who specializes in foreclosure defense, says he’s heard about scammers offering to help homeowners turned down for forbearance because they couldn’t prove they were undergoing hardship.

According to federal coronavirus relief measures, homeowners only need to verbally attest to a financial hardship to secure forbearance.

During the 2008 housing crash that left many borrowers owing more than their homes were worth, loan servicers discovered “a big profit stream” from default-related fees, including late fees, inspection fees and even from reselling properties in default, Thompson said.

Those abuses were on the mind of Karen Smith, a Philadelphia resident, who said by email that she didn’t trust loan servicers not to be looking for ways to make money this time as well. “I have had [a modification] before, about 10 years ago, and they basically added what I owed to my principal, thereby radically increasing the amount they would make from my mortgage over the life of the loan.”

But Thompson says, “Those incentives are reduced here because the federal regulators all prohibit charging a modification fee on their mortgages” and the federal coronavirus relief legislation “provides that no fees can accrue during the forbearance.”