Back in July, with millions of mortgage forbearances coming to their ends, FHA published guidelines for how homeowners in a forbearance are to be handled by banks and mortgage servicers in terms of workouts/modifications and the resuming of their monthly mortgage payments. Then on September 27th, FHA updated their guidelines, adding some additional options and protections for homeowners.
Of course, these guidelines only applied to FHA-insured mortgages. Fannie Mae followed with their own guidelines. And, I haven’t found anything specific from Freddie Mac, but here’s what they have said on the subject.
What’s been conspicuously missing are any guidelines for mortgages that are not government related and there’s been concern as to how these might go. I was hoping against hope that servicers of private mortgages would adopt some of the same guidelines issued by government agencies, but that doesn’t seem to be happening anywhere.
What everyone is worried about is that homeowners that accepted forbearance agreements as a result of Covid-19, will be forced into foreclosure or bankruptcy as a result of being asked to repay the missed payments in one lump sum or through an aggressive repayment plan that would cause mortgage payments to increase significantly.
And yet, that’s exactly what I’ve seen happening. In one case that I’ve followed, the servicer (SPS) has offered a repayment plan that would more than double the homeowner’s monthly payment, something I don’t think many people could do. I’ve also seen servicers of FHA mortgages seemingly oblivious of the guidelines published by FHA.
So, I’m more than a little worried about this situation… and I’m not alone.
A Warning to Banks and Mortgage Servicers…
In what might be considered a shot across the proverbial bow, New York’s Attorney General, Letitia James has both formally and bluntly warned banks and mortgage servicers that they are being expected to do everything possible to assist homeowners who have been in forbearances due to the Covid-19 pandemic, whether those homeowners have government backed loans or private mortgages.
To give you an idea of what she said in her three-page letter dated December 13, 2021, here’s what two paragraphs of her letter to servicers says:
James’ letter outlines expectations for mortgage servicers as forbearance plans expire, including that servicers comply with streamlined modification programs now required by various federal agencies and government-sponsored enterprises, and provide comparable relief to homeowners whose mortgages are owned by private investors through private label securities or by banks in their own portfolios. (Emphasis added.)
James emphasizes that servicers must invest in adequate staffing and improve their customer communications, so that they can handle any surge in requests for assistance. Servicers’ failure to prepare for this moment will be taken into account by the OAG.
That is… encouraging. However, based on my experience from the last mortgage meltdown of 2008-2013, in addition to what I’m already hearing from homeowners, mortgage servicers will likely ignore her words, at least until things get really, really bad.
Banks and mortgage servicers, in case you don’t remember what the last mortgage meltdown was like, don’t always do what they’re supposed to do… or do anything they don’t have to do… and they don’t seem to learn anything the easy way.
The question is, will we hear the same sort of messaging from other state attorneys general? I certainly hope so, and I’m pretty sure we will at some point, but as they say, I won’t hold my breath.
In her letter to mortgage servicers of December 13th, AG James also said:
“My office will continue to ensure that mortgage servicers comply with their legal obligations as we work to protect New York families and their homes. If we plan to rebuild our economy, we must ensure that homeowners are granted the relief they need.”
“It is always better economically for both the owners of the loans and homeowners to negotiate an acceptable workout option rather than proceed to foreclosure. Over the past 18 months, many in the mortgage industry have recognized this fact by rapidly placing homeowners into forbearance as required by state and federal laws and regulations.
It is now important that the industry takes necessary steps to help homeowners seamlessly transition into resuming their payments, and that we save as many homes from unnecessary foreclosure as possible.”
It sounds really great and it’s the right things to be saying, but it’s only New York. And, thus far, I haven’t seen any evidence that servicers nationally will be any different than they were during the last mortgage crisis. If homeowners want to make sure that other states get active in this regard, they’re going to have to start speaking out now.
How to Get Started…
The best way to get this sort of ball rolling is to write letters to your elected representatives at both the state and federal levels. I realize that many people don’t think that will accomplish much, but they’re wrong.
Public pressure matters a great deal and today, with access to social media, homeowners can spread information and build momentum faster than ever before, if they’re committed.
If homeowners wait until the problems proliferate, however, then there’s no question that this will get far worse before it gets better.
Here’s another line from AG James letter to servicers:
If any servicers failed to prepare for this moment, that lack of diligence will be taken into account in our enforcement decisions.
Now, we’re talking. Enforcement decisions are the sort of language that banks and mortgage servicers take note of, or at least should. If they don’t, then I’d have to think that they have some sort of learning disability.
Which they very well may.
To-date, the only stories I’m hearing from homeowners indicate that banks and servicers are oblivious. I’ve seen FHA guidelines for forbearances totally and consistently ignored. And as far as private mortgages go… it’s been awful. Now is the time for homeowners in forbearances to get angry. There is no percentage in waiting for the earthquake to hit. We need to send the message now.
Additionally, consumer attorneys need to be ready for the onslaught of homeowners that will need help fighting unfair treatment by banks and mortgage servicers. I’ve spoken with several and I’m afraid many, especially those that were involved the last time around, seem tired already.
In case you’re reading me for the first time, during the last foreclosure crisis I wrote almost 1200 articles that criticized and even chastised banks and servicers until several of them threw in the towel and things started to change.
I don’t want to have to do that sort of thing again, but banks and servicers should be on notice: I will if I have to… and I’m much better at it than I was last time.
Lastly, the Consumer Finance Protection Bureau (CFPB), also published guidelines on exiting a forbearance and you can find them here: Exit Your Forbearance. In addition, if you’re having problems with your mortgage servicer, you can report them to the CFPB on this site.
How to Take Action…
Below are links to help make homeowner action easier. The links will help you find your elected representatives, at both the state and federal levels.
House of Representatives Directory
WHAT HAPPENS TO YOUR EMAIL ON CAPITOL HILL? (Published by the APA)
1) A Legislative Correspondent downloads messages.
2) Email sender is verified as a constituent.
3) Emails are routed, printed, and/or tallied.
4) Important/compelling emails are given to a Legislative Assistant.
5) Unique/moving emails are shared with Member.
6) Email summary given at issue briefing before vote.
How many representatives should you contact? How about all of them and frequently, wouldn’t be a bad idea. Why not put it on your calendar and send a message every month.
Let’s do this…
Oh, and some people say that handwritten letters perform better than typed or email versions, so if you have the time, consider writing a letter by hand and dropping in your local mailbox. I know, you probably haven’t done that in a while… lol.
Here’s a sample letter you might want to use or work from:
EMAIL SUBJECT: Homeowners Need Help Exiting Forbearances to Prevent Foreclosures!
Dear Senator/Representative [LAST NAME]:
In 2020, Congress recognized that mortgage forbearances were needed by homeowners who were negatively impacted by the pandemic.
Now, those same homeowners need assistance exiting those forbearances so that they do not lose homes to foreclosure or are forced into bankruptcy as a result of banks and mortgage servicers failing to comply with published guidelines or the intent of those guidelines.
FHA, Fannie Mae, Freddie Mac, USDA and VA have all published specific guidelines as to how homeowners exiting a forbearance should be treated, but in many cases these guidelines are not being followed. And, since no guidelines have been issued by private mortgage holders, roughly 40% of all homeowners have no idea what they will be asked to do in order to resume their monthly mortgage payments.
This situation must change. Between 2009 and 2013, mortgage servicers did a terrible job offering homeowners acceptable workouts and we all need to make sure that doesn’t happen again.
Thank you for your assistance on this important matter.
Sincerely yours,
Homeowner in your state or district…
I’m not saying that my letter is perfect, by any means, but it’s a place to start. Send me your version of the letter and I’ll post the ones that look better than mine.
How many representatives should you contact? How about all of them and frequently, wouldn’t be a bad idea. Why not put it on your calendar and send a message every month.
Let’s do this and do it better than ever before…
Mandelman out.
