Government snafus boost mortgage forbearance

CARES Act relief hasn't come fast enough to prevent a spike in forbearance requests that outpaced government expectations

making payment on computer

The plan to keep Americans current on their mortgage payments amid the COVID-19 pandemic was supposed to work this way: The millions who lost their jobs would get beefed-up unemployment benefits aimed at fully replacing salaries, and for the first time gig workers would be included.

For good measure, the government would send out $1,200 checks to most Americans “as rapidly as possible,” according to the $2.2 trillion coronavirus relief bill approved by Congress last month.

Except, none of it has happened rapidly enough to prevent a spike in requests for mortgage forbearance – a temporary suspension of loan payments that must be paid back.

Millions of Americans haven’t been able to get through to besieged state unemployment offices to file for benefits despite calling dozens of times a day and trying tricks like getting up in the middle of the night to see if websites overwhelmed by high demand are restored to working order.

“The system just crashed because of the volume,” New York Governor Andrew Cuomo told reporters on April 9. “It’s one of those unanticipated consequences of a situation like this.”

Even if they could get through, a big chunk of gig workers discovered they were out of luck – at least for now. Many states haven’t yet updated their systems to make it possible for them to apply. In the past, contract workers such as freelancers and Uber drivers didn’t qualify for benefits because their employers didn’t pay unemployment taxes for them while they were working.

Adding to the chaos, many states have systems that rely on antiquated programming languages like COBOL, invented in 1959. Their challenge is finding people who can write in ancient code so they can update their systems to allow claims from non-traditional workers.

And the stimulus checks? The bill authorizing them became law on March 27. Treasury Secretary Steve Mnuchin said on Sunday the first paper checks will go out “starting next week.” In other words, the funds may or may not be available to help pay May bills such as mortgages.

Mnuchin wanted to find a way to put President Donald Trump’s distinctive signature on every check, but the president is not an authorized signatory for Treasury disbursements. In the end, Mnuchin came up with a work-around: “President Donald J. Trump” will appear on the memo line on the bottom-left corner of the checks, even though the money comes from U.S. taxpayers and was authorized by Congress.

The effort to find a way to include Trump’s name delayed the disbursements, according to a Washington Post story disputed by the White House. It’s the first time a president’s name has appeared on checks distributed by the Internal Revenue Service, according to ABC News.

It all adds up to a cash crunch. Many of the 10.2 million Americans who were laid off in the second half of March were left without a lot of options when it was time to make April’s mortgage payment. As a result, requests for mortgage forbearances allowing borrowers to defer payments surged beyond government expectations.

Another 11.9 million Americans filed for unemployment benefits in the first two weeks of April, according to the Labor Department. Economists are forecasting another 5.8 million filed claims last week, according to Trading Economics. Many of those were backlogged claims making their way into the system.

Mark Calabria, the director of the Federal Housing Finance Agency, told HousingWire in an April 7 interview he expected 1 million Fannie Mae and Freddie Mac mortgages would be in forbearance by May 1. We’re already 37% beyond that.

Nearly 1.4 million borrowers with mortgages backed by a government-sponsored enterprise, or GSE, are in forbearance, Black Knight said in a report on Friday. That’s about 5% of outstanding GSE home loans.

Calabria said in the interview he expected the enhanced unemployment benefits would keep borrowers current on their mortgages. When those benefits are funded, many of those folks will be getting full or near-full salary replacement, with the extra $600 payment appended to state benefits by the CARES Act. But the question is: What do they do until the cash comes through?

Perhaps they have enough savings to cover their mortgage payment for at least a month or two. But, the average U.S. mortgage payment was $1,216 in February, according to Black Knight, and decades of sluggish income growth have left four in 10 Americans unable to cover a $400 unexpected expense without using credit cards, according to the Federal Reserve.

If borrowers don’t have enough savings to cover their mortgage payment, they’ll likely call their servicer to ask for forbearance.

Mr. Cooper, the third-largest U.S. mortgage servicer, according to a ranking by Inside Mortgage Finance, has experienced a deluge of calls, according to CEO Jay Bray.

“If you have called us recently, you’ve probably been stuck on hold for a long time,” Bray said to customers on a video. “We’ve taken big steps to get hold times back in line. Over the past few days along, we’ve significantly increased our call center capacity.”

Documentation isn’t needed to prove a hardship, according to the Consumer Financial Protection Bureau.

“Other than telling your servicer that you have a pandemic-related financial hardship, you won’t need to submit additional documentation to qualify for this forbearance,” according to a CFPB video explaining the forbearance provisions in the CARES Act.

When the desperate folks getting up at 3 a.m. to try to file claims are ultimately successful, most states will backdate their benefits to the date of their job loss. So, jobless Americans will eventually get all the cash they’re due.

Requests for forbearance may drop when the cash starts flowing. And, since the suspended payments have to be repaid, most Americans aren’t likely to take Congress up on the 12 months of forbearance outlined in the CARES Act, said FHFA’s Calabria.

“We don’t know what the world’s going to look like in three to four months,” Calabria said. “There are certainly some unknowns.”

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