While some have complained that the mortgage forbearance program under the CARES Act is far too liberal, a new report claims some loan servicers aren’t being very transparent about the assistance available to homeowners.
A new report from the U.S. Department of Housing and Urban Development (HUD) Office of Inspector General (OIG) found that some loan servicers’ websites are displaying loan forbearance information that is “incomplete, inconsistent, dated, and unclear.”
Are Loan Servicers Trying to Discourage Forbearance?
- The CARES Act requires loan servicers to provide mortgage forbearance for up to 360 days on federally-backed loans
- That includes an initial 180 days and an additional 180-day extension if needed
- Borrowers are not required to pay it all back in one lump sum
- But there’s a lot of misinformation out there, even on loan servicers’ websites
The CARES Act allows homeowners to request forbearance for 180 days, followed by an additional 180 days if need be.
Effectively, borrowers can put 12 mortgage payments on hold while they deal with financial disruptions directly or indirectly related to the coronavirus epidemic (COVID-19).
Additionally, not much is needed from the homeowner other than a request for forbearance via a letter or perhaps a phone call, with no proof of hardship actually required.
This has led to an outcry from some pundits who believe it’s too easy to get mortgage assistance, even if you really haven’t experienced a decline in income at all.
But the HUD OIG’s report claims some loan servicers aren’t doing a great job conveying the details of mortgage forbearance, which could put some homeowners in a bad spot.
Simply put, if they’re being told they don’t qualify, or that they need to pay it all back in one lump sum, they may opt to avoid forbearance entirely.
While the numbers released thus far show a large number of Americans have already requested forbearance, it could in fact be a lot higher if information were clearer.
Of course, that could also lead to the collapse of some loan servicers that aren’t well capitalized and able to withstand so many advances of missed payments.
You can give the servicers a break in that this was a fast-moving situation with a flurry of announcements regarding mortgage assistance from mayors, governors, and other entities.
But some of the findings in the report are a bit troubling.
Study Found Lots of Inconsistent and Perhaps Misleading Forbearance Information
- 10 loan servicers didn’t have information about mortgage forbearance “readily available on their websites”
- 6 loan servicers listed 90 days as the initial forbearance period despite it being 180 days
- One servicer didn’t even mention forbearance as an option, instead offering a refinance or short sale
- Several servicers gave impression lump sum payment would be required at end of forbearance period
The HUD OIG report focused on the top FHA servicers as of April 1st, 2020 and found the 30 top servicers accounted for 90.5% of all FHA loans.
Of these companies, they concluded that 10 of them didn’t have information about mortgage forbearance “readily available on their websites.”
And many required the borrower to sign-in or call to learn about their options if unable to pay the mortgage.
Another servicer didn’t even mention forbearance as a solution, but rather listed “refinancing or a short sale” as available options at the moment.
With regard to how long forbearance is available, the report dinged servicers for rounding up the 180 days to six months, and the 360 days to 12 months, which I feel is ticky-tack.
I do the same thing when speaking of forbearance because it makes sense to speak in months, but I guess we’re talking about the government here.
However, 14 servicers didn’t provide information on the duration of the initial forbearance period on their websites, and one offered an initial forbearance period of 90 days, highlighting the “up to 180 days” text in the CARES Act.
They apparently didn’t want to “overestimate the duration of the borrower’s financial hardship,” which could also be construed as misleading.
To make matters worse, some of these loan servicers coupled that interpretation with lump sum repayment examples on their websites.
And while some did say borrowers had options other than lump sum payments at the end of the forbearance period, “such information typically came later than the statements about the need for borrowers to pay missed payments in a lump sum.”
In other words, one could argue that some servicers might be attempting to talk people out of requesting forbearance, even if they badly need it.
Because ultimately it puts stress on the servicer, so it’s not in their best interest to dole it out willy-nilly.
As a result of these findings, “HUD OIG plans to initiate additional work related to forbearance offered by FHA servicers under the CARES Act.”
It’s unclear what that work is, but remember this, you’ve got the option of forbearance for up to 360 days if you have a federally-backed home loan, and it doesn’t need to be paid back in full once that period comes to an end.
Read more: How does mortgage forbearance get paid back?