In just the space of three weeks, the United States has lost more jobs—over 17 million—than were lost in the entire Great Recession, an event that spanned roughly two years. That can only mean those same Americans who also hold a mortgage may now find themselves in the unthinkable position of being unable to make some or all of their monthly payments—perhaps for months, if not longer.
Making matters worse is that help offered by the federal government—courtesy of the massive $2.2 trillion Cares Act just passed by Congress and signed by President Trump—may help create the very mortgage meltdown it was meant to try and stop. The aid being offered to homeowners in this legislation is confusing at best and is highly dependent on the type of loan they have and how their lender interprets the law. It also matters how the banks and mortgage servicers structure repayment terms—and if they can even tell those asking for aid what the repayment terms are in the first place before they accept help.
To understand in more depth why the Cares Act is cruel to homeowners, we should be clear that the stimulus only offers mortgage aid to those with a government-backed mortgage. That means if you have an FHA-loan, Veterans Affairs loan, a loan backed by the Agricultural department or a loan as defined in Section 4022 of the Cares Act (read it here) you qualify for help, which is a vast majority of mortgages on the market. However, that still means millions of Americans are still left out, and if you have a private loan—one not government-backed or insured—you don’t qualify for assistance and are at the mercy of your bank.
So, what do you get if you do qualify? Assistance comes in the form of 180-day forbearance with an extension of another 180-days if requested. After you declare to your mortgage company that you have been impacted by COVID-19, you should be automatically granted a stay of payments—no documentation required.
Here is where things get tricky. The text of the law is not specific on several important points with language that is short on specifics or, well, anything besides the forbearance help. Furthermore, the Cares Act does not mention if the forbearance being granted is partial or whole. That’s a big deal—and one that many mortgage lenders will surely try to take advantage of.
Then, most important of all, is the terms of the forbearance. While the law clearly declares that your mortgage company cannot charge additional fees or charges for the forbearance, there is no exact mention of the terms of assistance being granted. For example, will you be forced into refinancing your home to include those missed payments, with your lender charging fees and maybe a higher interest rate and larger monthly payment? Will they take mercy on you and just put the payments missed to the back of the loan, to be paid when the loan is about to end? Or, will you be forced to take out a separate loan and make payments over time, only making matters worse? Sadly, there are no clear answers to any of this—and such a lack of clarity could be the key to whether millions of Americans accept help and can stay in their homes or just decide to walk away and foreclose, creating economic chaos.
And, to make matters worse, there are reports that lenders such as Wells Fargo and others are only granting those with a government-backed loan a 90-day forbearance where no payments are due during that time, only to demand the entire balance in full when your three months of forbearance are over—plus the current month due. For many that can only mean certain foreclosure—and perhaps tip our economy into something akin to the Great Depression.
My own recent experience in investigating how the process worked confirmed the worst. PennyMac, who holds my own government-backed mortgage, does help as mentioned above via a phone automated system and website that makes access to aid simple. However, they make it clear they cannot tell you what the terms will be until at end of the aid, and their offered aid options are very generalized. Here is the vague language they use to describe your repayment options—which will terrify anyone who is afraid their home could slip into foreclosure, especially if they just lost their job:
“While a lump sum payment is certainly an option, it’s not the only option. Once you’re able to resume making full payments, you can opt for a repayment plan and add extra money to your monthly mortgage payments in order to pay off the amount owed from the forbearance period. Or, you can look into a loan modification, whereby PennyMac rolls the balance back into the mortgage. No matter which option you choose, assistance programs will allow you to repay the missed payments over time.
Since you and PennyMac don’t know exactly when this particular hardship will end, we don’t know which long-term relief option will best fit your situation. Today, you won’t be expected to know how much you’ll be able to pay when your forbearance plan ends, or when you’ll be ready to resume regular payments. Rest assured, we’ll work with you toward the end of your plan to determine the best program for your situation. The missed payments during the forbearance plan will not be immediately due after your forbearance plan ends if you are unable to repay the full amount of those missed payments.”
In short, you could be putting your home at risk if at the end of the plan you can’t agree to whatever terms your bank places on you.
But, of course, you need to be able to get to your mortgage company and request aid—and not all automate the process like PennyMac. In addition, if you have questions or need help explaining your bank’s specific rules you may be in trouble. For example, I did try to call PennyMac, as I wanted to find out more about repayment terms, but never could get a customer service representative on the phone. When I tried to request such information late last week, I waited for hours on hold, only to be hung on by the PennyMac automated system on multiple occasions.
Combined with the fact that many who requesting aid either won’t be able to get it, won’t accept it because of the terms or might not be even able to get their bank’s attention to receive help, the table has been set for a mortgage meltdown that could make the Great Recession’s foreclosure crisis look small by comparison.