Article Courtesy of Bankrate
By Jeff Ostrowski
February 9, 2021
Some mortgage firms gave homeowners “incomplete or
inaccurate information” about a federal law designed to prevent a spike
in foreclosures, a federal regulatory agency says in a new report.
The findings take a bit of the luster from the federal mortgage
forbearance program, which has won rave reviews for staving off defaults
during the economic downturn of 2020. When the U.S. economy plunged into
a deep recession last year, politicians and the mortgage industry leapt
They dangled generous breaks — known as forbearance — to nearly anyone
with a home loan. As a result, several million homeowners were able to
hit the pause button on their mortgages, and foreclosures plunged to
record lows in 2020. There were 2.7 million homeowners in forbearance as
of this week, according to the Mortgage Bankers Association.
As the coronavirus crisis continues, however, there’s new evidence that
lenders didn’t perform flawlessly as they rolled out forbearance
programs. A newly appointed federal regulator says some mortgage
servicers — the companies that collect loan payments — failed to follow
David Uejio took over last month as acting director of the Consumer
Financial Protection Bureau (CFPB). Last week, he said some unnamed
servicers misinterpreted the lenient guidelines in the Coronavirus Aid,
Relief and Economic Security (CARES) Act.
The CARES Act promised borrowers who entered forbearance would pay no
penalties. However, Uejio wrote in a statement posted on the CFPB site
that some servicers charged and collected late fees for borrowers in
In other cases, servicers simply didn’t process borrowers’ requests for
forbearance. An appointee of President Joe Biden, Uejio promised that
the federal agency will pursue servicers that improperly applied
“Moving forward, the CFPB will take aggressive action to ensure that
regulated companies follow the law and meet their obligations to assist
consumers during the COVID-19 pandemic,” Uejio wrote.
The agency didn’t indicate how common the problems are, nor did it name
names of servicers who misled borrowers. The CFPB acknowledged that
mortgage companies faced “significant challenges” as they scrambled to
learn about the new forbearance program.
Regulatory experts expect the CFPB to take a more assertive approach
under Biden than it did when President Donald Trump was in the White
House. “We’re about to see a very sharp shift in tone and approach,”
said Michael Gordon, a former CFPB official and now a partner at
Bradley, a national law firm.
How forbearance is supposed to work
Under the CARES Act, forbearance is straightforward. Essentially any
borrower who wants forbearance can get it.
The pause on payments applies to anyone with a government-backed loan.
Borrowers can apply for forbearance and get a 180-day break on payments
with no penalties and no late charges. The missed payments are simply
added to the end of the loan.
Borrowers can ask for an additional 180 days of forbearance. The CARES
Act covers loans held by Fannie Mae or Freddie Mac or issued by the
Federal Housing Administration or the U.S. Department of Veterans
The CARES Act didn’t address jumbo loans, non-QM loans and other
mortgages held by lenders or owned by private investors, but many banks
voluntarily offered 180 days of payment relief.
The generous terms of forbearance are a sharp contrast to the mortgage
industry’s response to the housing crash and the Great Recession. During
that crisis, borrowers struggled to win relief from their loans, and
How servicers failed to follow the law
While the CARES Act was straightforward, some servicers misconstrued or
misinterpreted the law, the CFPB says. One servicer suggested,
inaccurately, that borrowers had to pay a fee to enter forbearance.
Another servicer provided incorrect due dates for the borrower’s next
Other examples of poor practices:
Dragging out the processing of forbearance
requests. In some cases, servicers were slow to process requests for
forbearance, the CFPB says. This led some borrowers to miss payments
and suffer hits to their credit scores.
Putting borrowers in forbearance without their
knowledge. In other cases, they thought they were simply perusing
information about forbearance on a servicer’s website, or discussing
financial struggles with representatives on the phone. Those
borrowers did not understand that they had applied for, or that the
servicer would process, a forbearance.
Errant collection notices. The CARES Act promised
borrowers they wouldn’t have to worry about mortgage payments for
six months to a year. However, some servicers sent notes informing
borrowers in forbearance that their accounts were past due, and that
they could face late fees and dings to their credit scores. These
notices “may result in confusion for consumers enrolled in CARES Act
forbearances,” the CFPB said.
Misleading statements about lump-sum payments.
The CARES Act doesn’t require borrowers to pay a large sum for
missed payments after forbearance ends. Instead, the borrower
resumes monthly payments. However, the CFPB says, some servicers
told borrowers they’d need to make lump sum payments to cover all
missed monthly payments when forbearance ended.
How to apply for forbearance
Generous forbearance programs — which give borrowers a break from
payments — have helped stave off foreclosures. How the relief works:
You have to ask. Borrowers must request
forbearance. Don’t stop making payments without checking in with
your lender or servicer.
Qualifying is relatively easy. Lenders aren’t
demanding proof of hardship.
There’s no penalty. Missed payments during
forbearance won’t hurt your credit score, and you won’t accrue late
You still owe the money. Forbearance pauses
payments by extending the length of your loan. After the grace
period ends, you’ll resume making regular payments but the term of
your loan will be extended to include the payments you missed.