Courtesy of Peter Hansen
Updated at 03.28 ET
Homeowners who have lost jobs or income say that their lenders require punishment if they participate in what should be a government intervention to help them.
To avoid a wave of home loan values, Congress and regulators told lenders that they must allow homeowners to postpone payments if they have been financially damaged during the coronavirus crisis.
Some homeowners say it works well, but others say there are many confusions.
They can’t reach their lender over the phone, or they hear different things every time they call. And some homeowners say their lenders tell them that in order to get help, they later have to come up with a large one-time payment that they can’t afford.
“Everything we are looking for is help,” says Julia Hansen. She and her husband, Jim, live in Maui, Hawaii and lost their income when the tourism industry closed down. Jim ran a restaurant.
They called their lender, Freedom Mortgage, to ask to postpone their payments. It’s called patience. They say they were told they could postpone their payments for three months, but with an alarming catch: They then had to make four months’ payments at once – with a balloon payment – to make the loan current.
“At that point, if you don’t pay it, you go into foreclosure,” Julia Hansen says she was told by a Freedom Mortgage representative. In other words, she and her husband would have to make a lump sum of about $ 8,000, which seemed unreasonable because Jim lost his job and they have no income until they start receiving unemployment benefits. And they do not know when these benefits will begin to come or how much they will receive.
In addition, the couple says that Jim’s mother died last year and taking care of her lost almost all of her savings.
“I feel that the government is trying to help us, and I feel that Freedom Mortgage is trying to tear us down,” Hansen says. “I am very disappointed and angry with them.”
Several other Freedom Mortgage customers also complained to NPR. The company said in a statement that it “works hard to help our customers.”
But other lenders give homeowners a better alternative. They agree to tackle the missed payments until the end of the loan period. In this way, homeowners can only resume their regular mortgage payments when they can afford to do so without paying any simple sum to catch up.
Freedom Mortgage, in a statement to NPR, first argued that it is not allowed to do so because “under current federal requirements, these amounts are not added at the end of the mortgage but rather depend on the end of the prudential period.” And the company said the requirements did not provide for “any extension of the maturity of the mortgage.”
But that doesn’t seem to be true.
Federal regulators say there are options besides a large balloon payment for borrowers, including moving the missed payments to the back of the loan period.
After NPR reached out to regulators, Freedom Mortgage changed its statement and removed the line on how it was not allowed to extend the loan period. When NPR pointed out to the company the options available to borrowers, Freedom Mortgage then stated in an email that it “will continue to offer all options available under the various government programs.”
Housing advocates say moving deferred payments to the back of the loan is the way to endure should work for most.
“If you have had a financial difficulty, you probably won’t have a huge amount of money to catch up on many months or even a year’s worth of mortgages,” said Mike Calhoun, president of the Center for Responsible Lending.
In fact, he says the rules require that borrowers who are financially injured in this crisis for the vast majority of home loans can postpone loan payments and then get back on track without their payments going up.
“Obviously, borrowers should get relief,” Calhoun says. “And at the end of the pay period, they are not required to pay in a lump sum unless they can do so at that time, which is likely to be very rare for borrowers, given this type of crisis.”
At least some banks seem to be on the right track with it. Susan Schwartz, who lives near Nashville, Tenn., Is self-employed and lost her income. She says her lender, Bank of America, first said she would be hit with a large balloon payment to catch up.
“My reaction to it was like what?” Schwartz says. “Why do I hear this? This is just nothing? Nothing is offered.”
But she says that a week later, the bank told her that the policy had changed – no one-time payment. She could only handle the deferred payments at the end of her loan so that her payments would not go up.
“It was a relief to me,” she says. “It was a relief for thousands and thousands of other individuals.”
Bank of America confirms that people can choose that option so that their monthly payments remain the same after the end of the endurance period.
But many homeowners still seem to have problems. Telephone representatives work remotely and the holding times are long. Call volume is rising.
Courtesy of Daniel Twiss
“Everyone is scared,” said Brad Twiss, a Portland, Ore real estate agent. He says some people he sold houses to not be able to get through to his lenders on the phone after waiting for hours. Those who do, he says, “hear drastically different things from each individual lender.” And some are told that they have to make one of these big balloon payments to catch up at the end of patience.
“It’s developing so fast,” says Twiss. “Every hour, even some big banks, the site will change what the guidance is. … Everyone is just, their hair is on fire.”
Calhoun says there is another big problem to play. The government ordered this payment relief but without a clear way for many lenders to pay for it. “That’s very much what it is,” says Calhoun. “And the size of this is huge.”
If you are a homeowner, the company that sends your mortgage check is often just an intermediary that acts as what is called a loan service. You send a check to the loan service, and it passes the check to someone else: investors in security-protected securities. If you do not send a loan service a check, the company still has to continue to pay these investors, and if it does not, the loan service company is in trouble. When so many homeowners get hurt financially and ask to postpone payments, this means billions of dollars of payments.
“There is panic among especially small lenders,” says Calhoun. He says many are in a tough place and are worried about their cash flow. The situation “desperately needs a solution to cover it, so they are in a position where they can help borrowers without going bankrupt,” he says.
The mortgage industry is lobbying hard for the federal government to give these companies a lifeline – access to the money they need.
Meanwhile, things are changing very quickly. So if you tried to get help from your lender and couldn’t, try again a week later. You can get a better answer and be able to extend your loan period to avoid a large balloon payment if you cannot afford it.
As for Freedom Mortgage, the company says that 70% of the loans it offers are guaranteed by the Federal Housing Administration or the Department of Veterans Affairs – often called FHA and VA loans.
NPR actually verified the company’s original statement that under federal requirements, when a borrower gets a caution, the “hidden” amounts “are not added” at the end of the mortgage but rather depend on the end of the supply period. “
“The FHA never requires a one-time payment at the end of a precautionary period,” says a senior official NPR told the Department of Housing and Urban Development. The official spoke in the background and referred to FHA loans.
The official said that the FHA has “many training options available to borrowers.” In fact, the official said, the agency has created a special COVID-19 method for lenders to move the deferred payments on the back of the loan period. This is done through a separate loan to be paid “when the first mortgage is paid or the borrower sells the property,” the official says.
Similarly, extending the maturity of the loan is among the options to help borrowers get back on track after a prudence, according to their federal regulator and guidance from Fannie and Freddie, for government-backed loans guaranteed by Fannie Mae and Freddie Mac.
After NPR reached Freedom Mortgage, the company said in an email, “We are not saying that payments cannot be added at the end of the loan at the end of the endurance period. Freedom is required to follow government guidance on loans supported by Fannie, Freddie, FHA, VA and USDA and will continue to offer all options available under the various government programs. “
But the company said that the FHA and VA have “approval requirements and documentation that must be collected from consumers to qualify for the various options to reduce losses.” Freedom Mortgage urged regulators to remove any “barriers” that might get in the way of homeowners protected by CARES law, the recently adopted Coronavirus legislation.
Julia and Jim Hansen, for their part, say they are reaching out to the company to try to get a better answer.