by Maurie Backman | Feb. 14, 2021
Forbearance is supposed to protect borrowers. But lenders need to stick to the rules for that to really happen.
Millions of Americans have lost their jobs or grappled with income loss during the course of the coronavirus pandemic, and that includes homeowners. Thankfully, there's been relief available for mortgage borrowers in the form of forbearance.
Under the CARES Act -- the coronavirus relief bill that was passed into law in late March -- with forbearance, your mortgage payments are paused for a preset period of time, during which your mortgage lender cannot report you as delinquent to the credit bureaus. During the pandemic, borrowers are entitled to up to 360 days of forbearance. Lenders cannot deny forbearance requests, nor can they even insist that borrowers provide proof of a hardship. These rules don't apply in non-pandemic times, but they were put in place to protect homeowners during a truly unique, unprecedented situation.
But data from the Consumer Financial Protection Bureau (CFPB) reveals that several loan servicers have actually violated forbearance rules since the start of the pandemic, while others supplied incorrect information that prevented borrowers from getting the help they needed. And that may have hurt borrowers or stopped them from moving forward with forbearance altogether.
To be clear, just because the CFPB found that some loan servicers broke the rules on forbearance doesn't mean they did so intentionally. This especially applies to mistakes that were made at the very start of the pandemic, before the rules surrounding forbearance were made clearer. But according to the CFPB, here are some of the violations that occurred.
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Under the CARES Act, forbearance has been open to borrowers who are current on their mortgages, but some applicants were told that only delinquent borrowers were eligible for it. As a result, some borrowers were instructed to only apply for forbearance after missing a mortgage payment. That was truly bad advice, because even a single delinquent payment could result in significant credit score damage.
The CARES Act specifically states that lenders cannot require borrowers to catch up on missed payments during forbearance in the form of a lump sum immediately afterward. Yet some borrowers were told that they would, in fact, need to come up with all of their missed payments at once at the end of their forbearance period.
Borrowers who are struggling already don't need more fees to grapple with. Yet some were told they'd be charged forbearance fees erroneously (when, in reality, borrowers cannot be charged fees to put their loans into forbearance). Furthermore, normally, late mortgage payments can result in costly fees for borrowers, but those fees are supposed to be waived under forbearance -- yet some of those fees were imposed nonetheless.
Some loan servicers also sent automated collection notices to borrowers whose accounts were in forbearance indicating that credit score reporting and late fees could ensue. This was no doubt a source of confusion and stress, even if those fees ultimately were not imposed.
Furthermore, many loan servicers experienced delays in processing forbearance requests early on in the pandemic. Given the uptick in volume they experienced, that's understandable. But it also means that some borrowers may have fallen delinquent on their mortgages needlessly and wrecked their credit in the process.
If you experienced any of the issues above, your first step should be to reach out to your mortgage servicer and reexamine your situation. For example, if you were denied forbearance, don't hesitate to request it again. And if you were told you'd need to catch up on all of your missed payments at once, and that prompted you to pass up forbearance, call again and get the scoop on how you'll actually be expected to tackle those skipped payments. If that doesn't work, contacting the CFPB is a remedy worth pursuing. You can contact them at (855) 411-CFPB or lodge a complaint online.
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