The Housing Scene by Lew Sichelman

Can't Pay Your Loan? Make the Call

A key federal watchdog agency has warned companies that administer mortgages, either for themselves or on behalf of investors, that they must be prepared for the coming surge of borrowers seeking relief.

Unprepared is unacceptable, said Dave Uejio, acting director of the Consumer Financial Protection Bureau.

"There is a tidal wave of distressed homeowners who will need help in the coming months," he says.

Uejio's message was directed at so-called "servicers" -- the companies that collect monthly payments from borrowers, pay their property taxes and homeowner's insurance and send the proceeds to those who own the loans. Some lenders manage their own loans, but most use these third-party companies.

But the 2.3 million borrowers who are still in active, federally mandated emergency mortgage relief programs should take heed, too. The day is rapidly approaching when they are going to be asked to start making their full house payments and start paying back what they owe.

As Uejio told servicers, "There is no time to waste, and no excuse for inaction. No one should be surprised by what is coming."

After being extended several times, the federal foreclosure moratoriums are set to expire on June 30. But earlier this month, the CFPB proposed extending the freeze until the end of the year. The final rule won't see the light of day until early June at the earliest, depending on the number of comments the bureau receives and what stakeholders have to say.

But even if the moratorium is extended, it doesn't mean you can stop making your payments. That would make you delinquent, negatively impacting your credit and making it harder to catch up.

If you are experiencing financial difficulties because of the pandemic, you have only until June 30 to ask your servicer for forbearance. That's when the COVID forbearance period comes to an end -- unless it, too, is extended, of which there's no indication at this writing.

As of early April, 93% of all mortgages were current, but 4.7% were in a forbearance plan, according to the Mortgage Bankers Association. Some 1.8 million of those are already behind by 90 days or more, and 78% are in plans that have been extended beyond their original three-month period.

For anyone struggling to keep up with their house payments, the first step -- even before you actually fall behind -- is to get on the horn with your servicer. (Or reach out online, says Jane Mason of Clarifire, a company that automates customer service functions for lenders and servicers.) Servicers are being told to be proactive, but don't wait for them to contact you.

Asking for forbearance is as easy as raising your hand. All you have to do is say that you've been negatively impacted by the pandemic. For most loans, no documentation is required -- just your word -- but be truthful. Don't lie just so you can stop making your payments for a few months. That's not right.

Once the relief period ends, though, anyone seeking help will have to document their financial hardship, so the time to act is now.

The CFPB's website (consumerfinance.gov/housing) lays out the five steps troubled borrowers need to take. If you qualify, relief will be granted for three to six months. It can be extended for up to 18 months, in some cases, if you need more time.

Servicers are being reminded they should contact borrowers before the end of their forbearance periods so they have time to apply for an extension. But more time won't be granted automatically. You must request it.

If you've exited a forbearance plan previously, you can ask to enter into a new one if your circumstances warrant. But again, you have only until June 30 to ask.

The CFPB has reminded servicers they must ensure that all homeowners have an opportunity to save their homes before foreclosure is initiated. The agency's rules apply to all loans touched in one way or another by the federal government. That includes those purchased by Fannie Mae and Freddie Mac, as well as those insured by the Federal Housing Administration, guaranteed by the Veterans Administration and/or underwritten by the Agriculture Department. Most private lenders follow similar guidelines.

Generally, four forbearance repayment options are available:

-- Repay. If you can afford to add more to your regular monthly payment once you exit the program, you can make up for the payments you missed as you go along.

-- Defer. If you can't afford to increase your payments, the missed amount will be added to your loan balance.

-- Modify. If you can't resume regular payments, your loan can be extended or your interest rate could be lowered. That way, your payments may be lower, but it will take longer to pay off your mortgage.

-- Reinstate. You make up your missed payments all at once. But note: Lenders cannot require you to make a lump-sum payment. So if that's the only option offered, the CFPB says to ask what other choices are available.

To help determine which option is best for you, servicers will ask if you can resume making payments, says Mason. They must evaluate your income based not only on earnings, but also public assistance, child support, alimony or other sources.

If there is no hope for returning to normal, the next choice is between selling your place or giving it back to your lender. Otherwise, unfortunately, a foreclosure is in your future.