On June 15, California Democratic senator Dianne Feinstein sent a letter to the heads of four federal agencies – the Federal Reserve, Consumer Financial Protection Bureau, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency – in which she expressed concern over the level of confusion American consumers are experiencing due to poorly explained mortgage forbearance guidelines.
The letter follows an April report from the Inspector General of the Department of Housing and Urban Development that found banks and servicers had been providing, according to Feinstein, “incomplete, inconsistent, and unclear information” to federally-backed borrowers seeking forbearance relief. Highlighting reporting by the L.A. Times, Feinstein explains that many servicers’ websites do not explain to homeowners with federally-backed mortgages that they are entitled to as many as 12 months of forbearance, or that the majority of these borrowers have options other than lump-sum repayments once their forbearance period ends.
“I urge your agencies to issue guidance to mortgage servicers requiring uniform and comprehensive consumer disclosures that clearly explain all federal mortgage forbearance options available during the coronavirus pandemic,” Feinstein wrote.
Based on his interactions with borrowers and industry professionals, Shashank Shekhar, founder and CEO of Arcus Lending says homeowners knew that forbearance was an option, but in many cases, that was the extent of their understanding. Few had – or still have, according to Feinstein – a clear idea of what happens when forbearance ends.
“Some even thought forbearance was forgiveness and that they wouldn't need to make those payments again,” Shekhar says. “They also had no idea that the servicers of privately-held mortgages could report the missed payments as late payments to the credit bureaus, thus jeopardizing any future loan approvals for the borrowers.”
In her letter, Feinstein also requested that borrowers holding privately-backed mortgages be made eligible for the same level of forbearance relief government-backed borrowers received in the CARES Act.
“My office has heard from numerous California constituents with privately-backed mortgages who are experiencing confusion and uncertainty around relief options available to them during the pandemic,” she wrote.
Feinstein explains that some borrowers of private money have been granted temporary forbearance by their lenders, but without the same suite of repayment options offered with government-backed forbearance plans, many are worried that the lump sum payments awaiting them on the other side of forbearance may bankrupt them.
Reporting by the New York Times found multiple instances of privately-backed homeowners being required to make large lump-sum deposits after receiving a pause in their mortgage payments. One homeowner in Florida is being asked to pay $4,450, or three months’ mortgage payments, on July 1. A laid-off grandmother in Queens is looking at a six-month forbearance repayment of $13,500.
The Times reports that 30 percent of borrowers are currently ineligible for the same forbearance relief offered to government-backed borrowers. In as little as a month or two, there could be tens of thousands of homeowners across America forced to make lump-sum payments they may not be able to afford.
“Without clear guidance for all mortgage borrowers and an extension of relief to privately-backed mortgage borrowers, many could unnecessarily fall into delinquency, default, and foreclosure, causing harm to American families and hampering our nation’s economic recovery,” Feinstein wrote.
Neither the Federal Reserve nor the Consumer Financial Protection Bureau responded to MPA’s requests for comment.