Remember when the Covid-19 pandemic first started. You know, like 10 years ago… or at least it’s starting to feel that way.
Remember how helpful your bank or mortgage servicer was when they sent you that caring letter or you received that understanding phone call offering you a forbearance, meaning that you didn’t have to worry about making your mortgage payment if you were being negatively impacted by the planet shutting down and staying home?
Remember how Congress too, turned into bi-partisan-Johnny-on-the-spot, passing a $2.6 trillion rescue package, called the CARES Act, in a matter of a few weeks? Remember how they said that this was not the fault of borrowers, it was a global pandemic for which no one could have possibly prepared.
Remember when they started paying people who were on unemployment more than they were making when they were fully employed? And, who could ever forget the PPP and EIDL loans that businesses could get at the drop of a hat, much of which would never have to be repaid? Never mind that it turned into a massive handout to people who didn’t need it and many of them promptly went out and paid cash for new Mercedes Benzs, Lamborghinis and Teslas. (I’m not kidding, click that link and you’ll see.)
The point was that our government seemed astoundingly caring and responsive, especially when you consider that these are the same people who can’t even pass budgets that keep the government from shutting down every year… can’t agree on who won in 2020… or can’t even debate anything controversial without having to endure someone on one side of the aisle or the other reading Dr. Seuss for hours to prevent it.
And yet, within weeks of the pandemic’s beginnings, Congress was printing and handing out money like there was no tomorrow… and for a while it seemed like there might be no tomorrow… because they cared about the well-being of our fellow citizens in a crisis in no way of their making.
Yeah, well those days are long gone and we’re back to the oppressive and entirely uncaring world we’ve all come to both loathe and expect.
Introducing: The Bait…
I’m paraphrasing, but basically here’s what banks said to homeowners:
“Mr. Jones, if you’ve been negatively impacted by Covid-19, we’d like to offer you a mortgage forbearance. That means you won’t have to worry about making your mortgage payment for a year. Would that help you during these terrifying and uncertain times? We just want to help…”
“You don’t need to submit any paperwork or anything like that. Just say yes and you can stop making your mortgage payment tomorrow. And it won’t hurt your credit or anything, we promise. We want to help…”
Here we are over a year later and wow has that story changed. We took the bait and now it’s time for the switch.
FHA was the first to publish guidelines on how forbearances were to be resolved. Assuming you had an FHA loan, it would be easy and almost effortless to resolve your forbearance. Your lender or servicer would simply put the payments you didn’t make all year onto the back end of your loan at 0% interest.
Easy peazy, right?
Of course, there are tens of millions of homeowners who don’t have FHA-insured mortgages so it wasn’t going to help everyone, but somehow people assumed that the thinking would spread and others would soon follow suit.
That didn’t happen and the chaos is finally starting to ensue.
First, let me make clear that to my way of thinking, NO ONE should be losing a home to foreclosure as a result of the pandemic and accepting a forbearance. No one. Not one person.
If the Fed can buy junk bonds and Congress can hand out millions to people that already have millions, then surely we can figure out how to make sure that NO ONE is threatened with or loses a home to foreclosure as a result of the pandemic and accepting a forbearance, can’t we? Who doesn’t agree with that?
There are those that do not agree with that. They’re called immoral, greedy and unfeeling shitheads. Or you can call them bankers, if you like. The two terms are synonymous.
Here’s a link to my podcast with guest, consumer attorney, Max Gardner, in case you want to hear what he had to say:
https://share.transistor.fm/e/f7200e59
A Case Study…
I started following a couple of homeowners in forbearances over a year ago. One with a jumbo mortgage, the other an FHA.
The jumbo’s forbearance ended in October of this year. Their home is worth roughly $4.5 million and they owe something like half that amount. Their monthly mortgage payment is north of $9,000 a month.
At the end of their forbearance, I contacted their servicer. I won’t mention their name, but their initials are SPS, so you can probably figure it out.
When I first asked them how this forbearance might be resolved they were positively brimming with possibilities. There were so many options and they all sounded good. No one mentioned that one choice would be to demand 100% of the arrearages be repaid in a hurry, or they’d foreclose. I would have remembered that and I swear, it never came up.
Until this week, that is. Now, that previously absent option seems to be the only one on the table. They have offered a repayment plan that requires the homeowner to make payments of only $22,000 a month, so that’s helpful, right?
Bait & Switch…
When banks and mortgage servicers offered everyone a forbearance willy-nilly in the spring of 2020, no one said anything about the decision potentially leading to foreclosure or a forced repayment plan that would double one’s monthly mortgage payment.
I’ve spoken with dozens of homeowners, and no one heard anything like that when being offered their forbearance. It was all sunshine and roses back then.
Well, that now seems a long time ago and things certainly have changed. We went from pulling together to fight a global pandemic and understanding that we were all in some trouble due to no fault of our own… to “we’re sorry, your modification has been denied, maybe you can send us more paperwork.” And don’t forget the ever popular, “the investor won’t let us do anything but screw you.”
How can this be legal? How can it be okay to lure a homeowner into a forbearance plan without disclosing the potential for serious downside? I mean, when you sign a mortgage, the bank is required by many laws to disclose everything under the sun. Why is it okay to have disclosed nothing to a homeowner making a decision that could lead to losing a home?
It’s bait and switch, pure and simple. A con. A grift. Like, if I called you and told you not to worry about making your car payment for six months or a year and then at the end I simply told you to pay it off and when you couldn’t, I repossessed it while you were sleeping.
Shouldn’t I have told you about that possibility before you agreed to the forbearance?
Shouldn’t the bank, at a minimum, have made homeowners listen to a recorded message saying something like: “If you decide to accept a forbearance, you need to know that we may not offer you any sort of accommodation at the end of the forbearance period. That means that you could be required to repay all missed payments and the accrued interest at once and that if you are unable to do that, we will foreclose on your home.”
At one point we had something close to five million homeowners in a Covid-19 forbearance. How many forbearances do you think would have been accepted if that message had been heard by homeowners? Nowhere near five million, I can promise you that.
By the way, the homeowner I followed who has an FHA mortgage hasn’t fared much better, even though FHA’s guidelines for handling forbearances were published on September 17, 2021. I’ve never heard of their servicer, Prime Lending, but I can say without hesitation that they’re a hot sticky mess.
They followed none of the FHA guidelines for several months, then said they were selling the loan and then they promptly scheduled a sale date.
I was confused to say the least. Then, seemingly out-of-nowhere, they sent a letter saying the borrower was approved for an FHA loan modification. Of course, the numbers they sent made no sense and if they’re selling the loan this month, I’m kind of expecting the new servicer to claim no knowledge of the offer to modify… and why there’s still a sale date in January… well, it’s beyond my ability to understand.
So, it’s a mess but perhaps the letter approving a post-forbearance modification is an indication that servicers are trying to comply with the FHA guidelines. Maybe they’ll get better at it over the next several months. Perhaps.
But, it’s no secret that property values have skyrocketed this past year so I’m not surprised that servicers don’t mind the idea of selling homes. The debt collectors are out in force trying to capitalize on the equity that’s been created by the rising prices, so why wouldn’t servicers be thinking the same way?
No one knows what’s going to happen, exactly, but from what I’ve seen thus far, there’s ample reason for concern. Homeowners in this country had better start letting their elected representatives know that they won’t tolerate a repeat of 2009-2013.
For the record, here are a few highlights of what the U.S. Department of Housing and Urban Development (HUD) published regarding forbearances resulting from Covid-19:
- Under the CARES Act, borrowers are entitled to request an initial forbearance of their monthly mortgage payments for up to 180 days and may request up to an additional 180 days.
- No documentation is required to prove the hardship beyond the borrower asserting that they are suffering from a hardship.
- Servicers should educate the borrower on the impact of longer forbearances.
- Servicers should ensure that borrowers understand that the missed payments must be repaid, although it may be paid back over time.
- Servicers should educate the borrower on what options will be available to the borrower to make repayments.
Servicers “should,” doesn’t do much for me. They should have but they didn’t… so what can be done about that? They didn’t do what they should have done? What’s the available recourse there? Do we send them to their rooms for a time-out?
In my view, two things are true: 1. Banks and mortgage servicers were obligated to tell borrowers what might result from accepting a forbearance… and 2. No one should lose a home because of Covid-19, at least not without every possible consideration.
I don’t know what the courts will say about this state-of-affairs, but it’s a sure thing that they’ll be getting their chance to weigh in as homeowners fight back.
Mandelman out.
P.S. And here’s a link to my podcast with Jay Patterson on the subject.
