Should You Institute a More Expansive COVID-19 Forbearance Policy?

 Posted on October 29,2020 in Mortgage Foreclosure

With many reports claiming that the COVID-19 pandemic could continue well into 2021—and some reports even suggesting that it could last into 2022—the economic impact is likely to remain substantial and adverse. Illinois alone approximately has more than a 20 percent unemployment rate since the start of the pandemic. All this job loss and financial strife means more foreclosures, mortgage loan modifications, workouts, and other adjustments to mortgages are bound to occur, at least eventually. With echoes of the Coronavirus Aid, Relief, and Economic Security (CARES) Act signed into law this past March still being felt today, mortgage lenders and mortgage servicers might be considering their responsibilities at this time in offering new—or extending prior—COVID-19 forbearance plans for their borrowers. Here is an overview for your reference. 

Mortgage Lender Responsibilities Per the CARES Act, Then and Now

Provided the mortgage being serviced is federally backed, mortgage lenders and servicers are required by law at this time to offer the following forbearance policies to eligible homeowners:

• The CARES Act enables forbearance of mortgage payments for up to six months in which interest accrues and the payments are only postponed.
• The lenders have the right to extend the forbearance another six months for a total of one year of a forbearance in mortgage payments due to the COVID-19 pandemic.
• During these forbearances, servicers cannot charge fees or interest beyond what would have been provided for with the homeowners’ usual monthly on-time mortgage payments.
• An important new interpretation of the CARES Act from federal regulators confirms that servicers cannot require repayment of the missed mortgage payments in one lump sum at the end of the forbearance.
• When the forbearance period ends, the lender will work with the homeowner to devise a loan modification, workout, or other plan that will allow them to pay back the missed payments over time.

Why Expanding COVID-19 Forbearance Policies Might Be a Good Idea

According to the U.S. House Committee on Financial Services, nearly 70% of all homeowners have federally-backed loans that qualify for these forbearance policies, which means you as a lender technically are not required by law to offer it to all your borrowers. However, despite this, you might want to consider the expansion of your COVID-19 forbearance policy to all homeowners and not just those with federally backed loans. Reasons to do this include:

• Simplified accounting practices—This will streamline the process of accounting for COVID-19 forbearances since all mortgages would qualify instead of just federally-backed loans.
• Less customer confusion and complaints—Borrowers will not protest and feel slighted when you tell them they do not qualify; instead, you will offer them a much-needed lifeline during these challenging economic times.
• Positive public image—Mortgage lenders and servicers who offer these forbearances to all homeowners instead of some homeowners stand to solidify or improve their public image for being helpful in this way to their customers. 

Contact a Chicago Mortgage Lender and Servicer Attorney

While mortgages in forbearance plans have been steadily decreasing over the last several weeks, it is still worth considering rolling out forbearance policies to all your mortgage borrowers instead of only those who are federally backed. To discuss how you might pursue such actions and also foreclosures and other mortgage-related collection activities, contact a Chicago foreclosure lawyer at 312-704-0771. The experienced professionals at Dimand Walinski Law Offices, P.C., can help you wade through these challenging times for mortgage lenders and homeowners alike.

Sources:

https://www.illinoispolicy.org/illinois-unemployment-hits-an-estimated-1-in-5-workers/

https://www.consumerfinance.gov/coronavirus/mortgage-and-housing-assistance/cares-act-mortgage-forbearance-what-you-need-know/

https://financialservices.house.gov/news/documentsingle.aspx?DocumentID=406472

https://www.worldpropertyjournal.com/real-estate-news/united-states/washington-dc-real-estate-news/real-estate-news-mortgage-bankers-associations-latest-forbearance-and-call-volume-survey-october-2020-covid-19-impact-on-home-mortgages-12195.php