Some mortgage companies misled borrowers about forbearance, regulators say
Some mortgage companies have given homeowners “incomplete or inaccurate information” about a federal law designed to prevent an increase in foreclosures, according to a federal regulator in a new report.
The results echo some of the brilliance of the federal mortgage forbearance program, which won rave reviews for avoiding defaults during the economic downturn of 2020. When the US economy plunged into a deep recession the year last, politicians and the mortgage industry jumped into action.
They dangled generous breaks – known as forbearance – to almost everyone with a home loan. As a result, several million homeowners were able to press the pause button on their mortgages, and foreclosures plunged to record levels in 2020. There were 2.7 million homeowners withheld last week, according to Mortgage Bankers Association.
As the coronavirus crisis continues, however, there is new evidence that lenders have not performed perfectly when they rolled out forbearance programs. A newly appointed federal regulator says some mortgage agents – the companies that collect loan repayments – have broken the law.
David Uejio took over last month as Interim Director of the Consumer Financial Protection Bureau (CFPB). Last week, he said some anonymous agents misinterpreted the Coronavirus Aid, Relief and Economic Security Act’s lenient guidelines (CARES).
The CARES law promised borrowers who failed to pay any penalties. However, Uejio wrote in a statement posted on the CFPB site that some agents charge and collect late fees for borrowers who do not forbear.
In other cases, agents simply did not process borrower forbearance requests. Appointed by President Joe Biden, Uejio vowed that the federal agency would prosecute agents who inappropriately enforce forbearance guidelines.
“Going forward, the CFPB will take aggressive action to ensure that regulated companies follow the law and meet their obligations to help consumers during the COVID-19 pandemic,” Uejio wrote.
The agency did not say how common the problems are, nor the names of the agents who misled borrowers. The CFPB acknowledged that mortgage companies faced “significant challenges” as they rushed to learn about the new forbearance program.
Regulatory experts expect the CFPB to take a more assertive approach under Biden than when President Donald Trump was in the White House. “We’re about to see a very distinct change in tone and approach,” said Michael Gordon, a former CFPB official and now a partner at Bradley, a national law firm.
Under the CARES Act, abstention is simple. Basically, any borrower who wants forbearance can get it.
The break on payments applies to anyone on a government guaranteed loan. Borrowers can apply for forbearance and get a 180-day break on payments without penalty or late fees. The missed payments are simply added at the end of the loan.
Borrowers can request an additional 180 days of abstention. The CARES Act covers loans held by Fannie Mae or Freddie Mac or issued by the Federal Housing Administration or the US Department of Veterans Affairs.
The CARES Act did not address jumbo loans, non-QM loans, and other mortgages owned by lenders or held by private investors, but many banks voluntarily offered 180 days of payment relief.
The generous forbearance conditions contrast sharply with the mortgage industry’s reaction to the housing crash and the Great Recession. During this crisis, borrowers have struggled to get relief on their loans and foreclosures have skyrocketed.
While the CARES law was straightforward, some service agents misinterpreted or misinterpreted the law, according to the CFPB. A service agent suggested, mistakenly, that borrowers should pay a fee to forbear. Another provider provided incorrect due dates for the borrower’s next payment.
Other examples of bad practice:
Delay the processing of abstention requests. In some cases, services have been slow to process forbearance requests, according to the CFPB. This has led some borrowers to miss payments and suffer damage to their credit scores.
Obtain borrowers without their knowledge. In other cases, they thought they were just browsing forbearance information on a service provider’s website or discussing financial difficulties with representatives over the phone. These borrowers did not understand that they had requested, or that the service agent would process, a forbearance.
Wrong collection notices. The CARES Act promised borrowers that they would not have to worry about mortgage payments for six months to a year. However, some duty officers sent notes advising forbearers that their accounts were in arrears and that they could face late fees and downgrades to their credit rating. These notices “can cause confusion for consumers registered for abstentions from the CARES Act,” the CFPB said.
Misleading claims about lump sum payments. The CARES Act does not require borrowers to pay a large sum for missed payments after forbearance ends. Instead, the borrower takes back the monthly payments. However, according to the CFPB, some service agents have told borrowers that they should make lump sum payments to cover any missed monthly payments at the end of the forbearance.
Generous forbearance programs, which give borrowers a break in their payments, have helped prevent foreclosures. How the relief works:
You have to ask. Borrowers must apply for forbearance. Don’t stop making payments without checking with your lender or service agent.
Qualifying is relatively easy. Lenders do not require proof of hardship.
There is no penalty. Missed payments during forbearance will not affect your credit score and you will not accumulate late fees.
You still owe the money. Forbearance suspends payments by extending the term of your loan. Once the grace period is over, you will start making regular payments again, but your loan term will be extended to include any payments you missed.