Confusion Over COVID-19 Mortgage Relief Programs

Government relief for homeowners facing difficulties paying their mortgages has been a slow and confusing process: thousands of homeowners are spending several hours waiting to speak with their mortgage service providers and the options given may not be suitable for a household suffering from the loss of a significant portion of their income due to the novel coronavirus epidemic, says the Center for New York City Neighborhoods, a homeownership advocacy group. 

It has been over 30 days since Governor Andrew Cuomo announced in March that there would be a 90-day eviction moratorium for tenants and a 90-day mortgage-waiver to help homeowners whose loans are serviced by state-licensed banks and mortgage service providers. Days later, the Trump administration said homeowners with federally backed mortgages from Fannie Mae, Freddie Mac, Federal Housing Administration, Veteran Affairs, HUD or USDA may request forbearance for up to 180 days.

“We’ve seen a spike in calls on our statewide foreclosure prevention hotline from homeowners who are worried that they’re going to start missing mortgage payments. They’ve heard about government relief on the federal or state level. They’re confused about that relief and they’re also surprised when they do get in touch with their mortgage servicer and actually hear what is being offered to them,” says Joseph Sant, the deputy general counsel for the Center for NYC Neighborhoods. 

“So a lot of what we’re hearing from people is they expected more substantial relief than is actually being offered by mortgage servicers. They’re hearing that three payments may be deferred and put onto a forbearance, but that they’ll owe everything at the end. That’s really shocking to people who have lost their income [completely] or have seen a reduced [income].”

Sant says in addition to the stress of navigating their finances, homeowners are waiting up to several hours on the phone to get a hold of the mortgage service providers to start the relief process.  

Broad need, patchwork response

According to a March survey from the Mortgage Bankers Association, a trade group representing the mortgage industry, reported forbearance requests had grown by 1,270 percent between the week of March 2 and the week of March 16, and another 1,896 percent between the week of March 16 and the week of March 30. 

Under the federal CARES act, a $2.2 trillion stimulus package, the Trump administration says homeowners with federally-backed mortgages are eligible for up to 180 days of forbearance. But if homeowners are still facing difficulties in their finances, they can request an extension of up to another 180 days of forbearance. Sant says the state forbearance is similar to the CARES Act but its forbearance period is for 90 days and both forbearance rules, state and federal, do not forgive mortgage payments despite the gamut of homeowners and small businesses that are being impacted by the novel Coronavirus epidemic. 

Sant says there are two gaps: the first is the relief is not enough for all homeowners; for example, the 180 forbearance only applies to federally-backed mortgages by government sponsored enterprises (GSE) such as Fannie Mae or Freddie Mac. In New York State, forbearance for 90 days only applies to state-regulated mortgages. 

The second is there is no plan for what happens when the forbearance period ends for those homeowners. 

What comes next?

Some banks and lenders are requiring homeowners to pay a huge lump sum mortgage payment all at once to make up for any missed payments. So far, Fannie Mae and Freddie Mac have created a permanent loan modification option for this crisis but other banks and lenders have yet to follow their lead. 

Owners aren’t the only ones affected: Many low-to-moderate-income tenants have owner-occupant landlords who may not know what will happen at the end of the forbearance period on their mortgage, and those landlords may not be able to offer rental relief to their tenants.

The Center for New York City Neighborhoods says there are two paths for offering more comprehensive homeowner relief. The first is to create a national loan modification program which would allow a homeowner and their lender to take missed payments, move them to the end of the mortgage term by extending the term of the loan rather than requiring a lump sum payment. The second path would be for those households who won’t recover or will only partially recover to receive a loan modification that would take a look at those households and their ability to repay and modify their monthly mortgage payments going forward so that they remain affordable regardless of who their loan servicer is. Sand says similar options were available during the subprime mortgage crisis which led to the 2008 recession. 

“It’s worth saying, we’ve done this before. [We’ve] done this type of large scale mortgage payment relief in the past. In the subprime crisis, we had the home affordable modification program that was created out of the TARP (Troubled Asset Relief Program) bail-out bill in 2008 and that allowed for industry-wide standards about what mortgage relief means and how it should look for, for homeowners based on their individual circumstances,” he says. “And that program helped save millions of homes. It had enormous operational problems. I worked through, I worked with homeowners all throughout that time and it was a very hard program to access. I don’t want to repeat the bureaucratic failings of that program, but it succeeded in creating a uniform standard across the market that customized payments according to a person’s ability to repay after the hardship had ended. And I think that’s what we need here.”

A recent analysis from the Black Knight, a financial data firm, reported that over 3.4 million mortgage borrowers are now in forbearance, representing 6.4 percent of all U.S. mortgage loans. 

Other problems and other ideas

Sant says homeowners are also facing other issues, such as predatory scammers who are trying to take advantage of households that may be economically vulnerable. If homeowners have any questions or suspect a scam, they can call the Homeowner Protection hotline to connect to free, vetted non-profit help: 646-786-0888. 

On the city and state level, elected officials are scrambling to draw up legislation which would provide further relief to homeowners as well as tenants, small-business owners and their property owners. This week, Brooklyn Senator Julia Salazar introduced the “Relief for All” bill into the Senate. The “Relief for All” bill which would provide abatements of rent for residential and commercial small business tenants and financial relief for homeowners, affordable housing developers and residential cooperatives due to the impact of government ordered restrictions in response to the novel COVID-19 epidemic. 

For homeowners the bill would provide financial assistance or relief to small homeowners losing rental income due to the COVID-19 crisis “for the purpose of ensuring such small homeowners possess sufficient funds to continue operating safe, decent and sanitary housing for themselves and their tenants during the crisis,” the bill stated. The bill defined small homeowners as a property owner of a dwelling with four or fewer housing units and the landlord must also be a primary resident of the said property. The funding could come in the form of grants from federal or state sources. Similar to homeowners, if the bill passed, it would also provide similar financial relief for affordable housing development groups and residential housing cooperatives. 

“New Yorkers are facing down an unprecedented crisis, and we need an unprecedented response. By passing Relief For All, we can preserve affordable housing, while keeping families in their homes and businesses afloat. With no home left behind, and every rent paid, this is a unity bill that meets the needs of this moment,” said Salazar in a press release.

“Given the deficit in New York State and unfortunately the governor’s unwillingness to consider any new sources [of revenue], we anticipate having to rely largely on federal funding. So there are some grants and funding available from the state directly related to the public health emergency,” Salazar told City Limits in an interview. “I think that there also may be funds available to New York State still under the CARES Act that could be used to cover some of the fiscal impact for the Relief for All bill.”

Other proposals are on the table in Albany, and there are measures under consideration by the state as well. Despite the efforts on state and city level, Sant says without support from the federal government, local government powers are limited. 

“I think this really needs to be a federal issue. I think the ability of states to assist here is limited. [We] are in the middle of an unprecedented disaster. It should not matter who your investor is. You should be getting the same relief that someone else similarly situated is getting,” says Sant. “People will go into foreclosure at the end of these relief periods unless Congress takes additional action. I think it’s naive to think that in a few months everyone who’s on these forbearance plans, and there’s already over two million of them, that when social distancing ends that all will go back to normal and that they’ll all just be ready to resume paying their mortgage. We don’t know that.”