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Under the CARES Act, forbearance is straightforward. Essentially any borrower who wants forbearance can get it. The pause on payments applies to anyone with a government-backed loan. Borrowers can apply for forbearance and get a 180-day break on payments with no penalties and no late charges. The missed payments are simply added to the end of the loan. Borrowers can ask for an additional 180 days of forbearance. The CARES Act covers loans held by Fannie Mae or Freddie Mac or issued by the Federal Housing Administration or the U.S. Department of Veterans Affairs. The CARES Act didn’t address , and other mortgages held by lenders or owned by private investors, but many banks voluntarily offered 180 days of payment relief. The generous terms of forbearance are a sharp contrast to the mortgage industry’s response to the housing crash and the Great Recession. During that crisis, borrowers struggled to win relief from their loans, and foreclosures soared. How servicers failed to follow the law
While the CARES Act was straightforward, some servicers misconstrued or misinterpreted the law, the CFPB says. One servicer suggested, inaccurately, that borrowers had to pay a fee to enter forbearance. Another servicer provided incorrect due dates for the borrower’s next payment. Other examples of poor practices: Dragging out the processing of forbearance requests. In some cases, servicers were slow to process requests for forbearance, the CFPB says. This led some borrowers to miss payments and suffer hits to their credit scores. Putting borrowers in forbearance without their knowledge. In other cases, they thought they were simply perusing information about forbearance on a servicer’s website, or discussing financial struggles with representatives on the phone. Those borrowers did not understand that they had applied for, or that the servicer would process, a forbearance. Errant collection notices. The CARES Act promised borrowers they wouldn’t have to worry about mortgage payments for six months to a year. However, some servicers sent notes informing borrowers in forbearance that their accounts were past due, and that they could face late fees and dings to their credit scores. These notices “may result in confusion for consumers enrolled in CARES Act forbearances,” the CFPB said. Misleading statements about lump-sum payments. The CARES Act doesn’t require borrowers to pay a large sum for missed payments after forbearance ends. Instead, the borrower resumes monthly payments. However, the CFPB says, some servicers told borrowers they’d need to make lump sum payments to cover all missed monthly payments when forbearance ended. How to apply for forbearance
Generous forbearance programs — which give borrowers a break from payments — have helped stave off foreclosures. How the relief works: You have to ask. Borrowers must request forbearance. Don’t stop making payments without checking in with your lender or servicer. Qualifying is relatively easy. Lenders aren’t demanding proof of hardship. There’s no penalty. Missed payments during forbearance won’t hurt your credit score, and you won’t accrue late charges. You still owe the money. Forbearance pauses payments by extending the length of your loan. After the grace period ends, you’ll resume making regular payments but the term of your loan will be extended to include the payments you missed. Learn more
SHARE: Jeff Ostrowski covers mortgages and the housing market. Before joining Bankrate in 2020, he wrote about real estate and the economy for the Palm Beach Post and the South Florida Business Journal. Related Articles