Terry’s Columns When Forbearance Ends

When Forbearance Ends

By Terry Savage on June 02, 2021

The extended period of mortgage forbearance is scheduled to end on June 30th. If you’ve been helped by this program, you should be preparing for what comes next. And you need to be proactive to make a plan with your servicing company — and to avoid a financial crisis.

A new mortgage finance rip-off is now underway impacting homeowners who must deal with the end of mortgage forbearance. Some mortgage servicing companies are already trying to take illegal advantage of those who are unable to make the soon-to-be required payments.

Mary’s story below shows what could happen if you aren’t careful in dealing with your servicer. This is not only about personal pain. These servicing companies could trigger a wave of unnecessary foreclosures — unless federal housing regulators step in to require servicers to follow the post-forbearance rules.

Forbearance Facts
First, some basic facts about the ending of the forbearance period, which is likely coming in the next month or so for millions of homeowners.

One of the first acts of the Biden administration, even before the American Rescue Plan Act of 2021 was passed by Congress, was to extend existing mortgage forbearance until June 30, 2021. Those programs had been scheduled to end on March 30, 2021, forcing more than 10 million homeowners to scramble to deal with the resumption of payments.

It also allowed homeowners with conventional loans to request one additional three-month extension, for 15 months total of loan forbearance. To be eligible, you had to have been in a COVID-19 forbearance plan prior to February 28, 2021. And homeowners with government-backed loans (FHA, VA, USDA) could request two additional three-month extensions, for up to 18 months total forbearance.

The Legal Alternatives
You are supposed to have several options for repayment once forbearance expires:

—Full repayment in one lump sum. Note: Lenders are NOT allowed to require this option.
—Regular additional payments in addition to your basic monthly payment — arranged on a schedule over a period of perhaps a year or two.
—A lengthened term to your loan — adding payments to the end of your loan. Ultimately, this will cost more in interest but will allow you to keep your previous payment schedule
—Loan modification. Perhaps the lender will offer a lower interest rate, reducing the monthly payment — even though the loan balance might be a bit higher because of accrued interest.

The New Mortgage Rip-off
And now, let’s see what is in the process of happening to Mary, a widow with two school-age children.

When COVID-19 impacted her earnings, she took advantage of mortgage forbearance. Her mortgage loan at that point had a balance of $294,800, with a monthly payment of $1,690 and an interest rate at 4%. The forbearance helped her get through the past year. She was ready to resume her old payment schedule.

Instead she was told by Select Portfolio Servicing Inc. (SPS), her servicing company, that she was being given a loan modification. Not asked, but told! In fact, they sent her a bill for the first month’s payment — due June 1.

But suddenly, the payment had jumped to $2,268 per month — a more than 30% increase! This “loan modification” had the same 4% interest rate as her old loan. BUT, the balance had jumped to $329,000 because they added the 12 months of skipped payments (which were mostly interest)! That’s what made the monthly payment rise so sharply.

This unilateral action violates all the FHA and HUD rules about mortgage foreclosures. Customers must be given a choice of programs — not compelled to either pay off the forbearance amount or refinance it into the balance of the loan immediately.

Mary and I were on the phone together for hours, leaving messages and requests. It was impossible to get beyond low-level, polite but powerless clerical staff. The corporate wall was impenetrable. SPS has perfected the art of insulation.
But they are not invincible to government action. This same company under a previous name (Fairbanks Capital) settled a government HUD action resulting in a $40 million refund to mortgage customers.

SPS is currently owned by Credit Suisse, which purchased the company in 2005. A 2007 settlement with HUD and the FTC included a long laundry list of specifically prohibited anti-consumer mortgage practices. Well, it appears they are at it again.

It’s time for the government to go after these mortgage servicers, reminding them of the rules — before they destroy the lives of people like Mary who are trying to rebuild after the COVID-19 pandemic. Taking early action against these predators would save a lot of pain.

Meanwhile, if you’re a homeowner who has been in mortgage forbearance, contact your servicer immediately. Don’t do a refinance that adds missed payments to your balance. Set up a resumption of your old payment schedule or discuss future extensions of forbearance. Waiting until everyone is in a panic about reinstating payments is not a good strategy. And that’s the Savage Truth.



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