It’s complicated.
The CARES Act provides for a mortgage payment forbearance period of up to a year for homeowners impacted by the pandemic. Forbearance doesn’t mean forgiveness. If your loan payments are suspended, you have to make them up, some time in some way.
And the suspension of installments applies just to federally related or guaranteed mortgage, which include those insured by FHA and the Farm Home Administration, VA guaranteed loans, and loans purchased by Fannie Mae and Freddie Mac, so-called “conforming loans” or “Qualifying Mortgages (QMs). These loans’ dollar amount limit, generally speaking, for a single family residence is $510,400, with a higher ceiling for so-called high cost areas. Loans above the QM limit aren’t covered by CARES, although those lender/servicers will likely be receptive to deferring payments. As we’ve said repeatedly in this column, there is absolutely no good foreclosure, not ever, not for anyone involved. Finally, second home and investment property loans are not covered by the act.
Stay with me; I’m trying to make this as simple as possible. What complicates everything is that all of these loans have been packaged in mortgage backed securities (MBS), and are administered by mortgage servicers which are not owners of the loans. In some cases, that servicer may be the entity that funded the loan and then retained servicing for a fee, or it may be a company that specializes solely in the servicing, that is collection and remittance of payments, to the ultimate owner, which is the issuer of the MBS.
OK, I’ll slow down.
Now, here’s what’s creating confusion in implementing the forbearance provision of the act: The servicing agreements specify that, if a borrower doesn’t make a payment, that payment still has to be remitted to the MBS by the servicer. The servicer is obligated to advance money it doesn’t have.
Which may have been why some of the big bank servicers said, “Sure, we’ll let you miss three payments, but at the end of 90 days, we’ll expect you to make up all of those missed installments in a lump sum.” An oxymoronic conundrum if there ever was one. Naturally, the universal reaction to this one was, “Oh, I’m out of work, can’t make one payment now, so I’ll have three times that in three months? No thanks.” (Sometimes it seems that the TBTFs (Too Big to Fails) have a PR department charged with doing and saying exactly the wrong thing.)
Subsequently, the Federal Housing Finance Agency (FHFA), the regulatory for Fannie and Freddie, directed the two enterprises to tell servicers that they didn’t have to advance payments after four months of delinquency.
And, if you have an FHA insured, or a VA guaranteed loan, you should be able to modify your loan by adding the missed payments to the end of the loan. You’d simply owe more on your mortgage.
Confused? Good, because, if you call your loan servicer, the person on the other end will be as well. The first person you speak to, when you finally get to talk to a human being, isn’t a decision maker or even a mortgage lending expert. They’re essentially reading from a script they’re given, and that story can change as government and company policies change.
If the first forbearance option you’re offered doesn’t fit your situation, it doesn’t mean you’re out of luck. The first contact person may not fully understand the type of mortgage you have, or there may have been a change in how it’s handled. It may be that you’ll need to contact your servicer in writing to request a program
If you like what you’re told, follow through on it only after you’re notified, in writing of the details of the agreement. And it’s very important to save every communication between you and the loan servicer. Remember, you’re building a file for possible future use.
Finally, keep in mind that you’re still contractually liable for every principal and interest payment not made. Even in the best case, it’s a deferment of debt.
Unfortunately, you may be temporarily out of a job. But, if you’re seeking mortgage forbearance, you’ll be busy for a while:
Talking to Robot Ladies and enjoying hold music.
Pat Dalrymple is a western Colorado native and has spent more than 50 years in mortgage lending and banking in the Roaring Fork Valley. He’ll be happy to answer your questions or hear your comments. His e-mail is pdalrymple59@gmail.com.