It\u2019s complicated.<\/p>\n
The CARES Act provides for a mortgage payment forbearance period of up to a year for homeowners impacted by the pandemic. Forbearance doesn\u2019t mean forgiveness. If your loan payments are suspended, you have to make them up, some time in some way.<\/p>\n
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 \u201cconforming loans\u201d or \u201cQualifying Mortgages (QMs). These loans\u2019 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\u2019t covered by CARES, although those lender\/servicers will likely be receptive to deferring payments. As we\u2019ve 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.<\/p>\n
Stay with me; I\u2019m 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.<\/p>\n
OK, I\u2019ll slow down.<\/p>\n
Now, here\u2019s what\u2019s creating confusion in implementing the forbearance provision of the act: The servicing agreements specify that, if a borrower doesn\u2019t 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\u2019t have.<\/p>\n
Which may have been why some of the big bank servicers said, \u201cSure, we\u2019ll let you miss three payments, but at the end of 90 days, we\u2019ll expect you to make up all of those missed installments in a lump sum.\u201d An oxymoronic conundrum if there ever was one. Naturally, the universal reaction to this one was, \u201cOh, I\u2019m out of work, can\u2019t make one payment now, so I\u2019ll have three times that in three months? No thanks.\u201d (Sometimes it seems that the TBTFs (Too Big to Fails) have a PR department charged with doing and saying exactly the wrong thing.)<\/p>\n
Subsequently, the Federal Housing Finance Agency (FHFA), the regulatory for Fannie and Freddie, directed the two enterprises to tell servicers that they didn\u2019t have to advance payments after four months of delinquency.<\/p>\n
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\u2019d simply owe more on your mortgage. <\/p>\n
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\u2019t a decision maker or even a mortgage lending expert. They\u2019re essentially reading from a script they\u2019re given, and that story can change as government and company policies change.<\/p>\n
If the first forbearance option you\u2019re offered doesn\u2019t fit your situation, it doesn\u2019t mean you\u2019re 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\u2019s handled. It may be that you\u2019ll need to contact your servicer in writing to request a program<\/p>\n
If you like what you\u2019re told, follow through on it only after you\u2019re notified, in writing of the details of the agreement. And it\u2019s very important to save every communication between you and the loan servicer. Remember, you\u2019re building a file for possible future use.<\/p>\n
Finally, keep in mind that you\u2019re still contractually liable for every principal and interest payment not made. Even in the best case, it\u2019s a deferment of debt.<\/p>\n
Unfortunately, you may be temporarily out of a job. But, if you\u2019re seeking mortgage forbearance, you\u2019ll be busy for a while:<\/p>\n
Talking to Robot Ladies and enjoying hold music.<\/p>\n
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\u2019ll be happy to answer your questions or hear your comments. His e-mail is pdalrymple59@gmail.com.<\/p>\n