Lenders Demand Punishing Terms For Struggling Homeowners Amid Pandemic

Apr 24, 2020
Originally published on April 24, 2020 9:50 am
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Three-and-a-half million homeowners are skipping their mortgage payments because they've been hurt financially by the pandemic. That's according to new numbers out this morning. Now, Congress told mortgage lenders to give homeowners help for up to a year if they need it - let them miss payments or pay partially. But many people are being warned if they do miss payments, they will end up with giant bills later on. Here's NPR's Chris Arnold.

CHRIS ARNOLD, BYLINE: Jasmine Esposito (ph) lives in New York, and she's lost most of her income. She arranges tours for musicians. And like many other homeowners, she says her lender told her that if she skips mortgage payments like Congress says she can, the consequences will be punishing.

JASMINE ESPOSITO: You know, it stresses us out. He's like, I don't want to think about this every day. I'm like, it's just like a black cloud hanging over my head.

ARNOLD: Jasmine's husband Frank Gallo works for the Long Island Rail Road and had his hours cut. Even with her unemployment, the couple says they're making thousands of dollars less a month. So they called up their lender, Freedom Mortgage.

FRANK GALLO: I spoke to Freedom Mortgage. They told me, yes, you can skip three months' payments. But then they told me there was a balloon payment at the end of it.

ARNOLD: In other words, after three months, they'd have to come up with four months of mortgage payments all at once - in their case, $14,000.

GALLO: Fourteen thousand dollars in one shot to come up with a balloon payment of that much.

ESPOSITO: It's not possible.

GALLO: It's - yeah, it is impossible.

ESPOSITO: Where's this pile of money? Is this going to magically appear from somewhere?

GALLO: If everyone's, you know, lost their job at this point - so I said, how is that helping? That's doing the exact opposite. That's putting people in further debt once we get out of this.

ARNOLD: Meanwhile, Frank's already had to use some of his 401(k) retirement money to pay bills. But under the rules, there's actually a much better option to make up the missed payments. Other homeowners are being told they can get it. Diane Thompson is a former attorney with the Consumer Financial Protection Bureau.

DIANE THOMPSON: In the vast majority of cases, what should happen at the end of the CARES Act forbearance period is that homeowners should be given the opportunity to have those missed payments put on the back end of their mortgage.

ARNOLD: That means you just return to making your regular monthly mortgage payment and you don't get socked with a giant bill that you can't afford. Thompson says Congress should make this the default option that homeowners get automatically. She says that would fix the current situation where borrowers are being told about possible outcomes that are wildly inappropriate for their situation.

THOMPSON: When servicers are telling homeowners that they have to make a lump-sum payment, that's contrary to the law and contrary to all of the guidance I've seen coming out from the various regulators.

ARNOLD: Freedom Mortgage says that it is, quote, "fully complying with the CARES Act." The company refused to discuss any particular case, citing borrower privacy. And it said it was prepared to offer, quote, "all options currently allowed by the various government agencies." But again, some of those options sound terrible to homeowners. Derek Reich lives in Washoe Valley, Nev. He's lost all of his income as a freelance video cameraman. And he says his mortgage company - it's called Mr. Cooper - first told him that he had to make a big balloon payment, then he was told it might be possible to modify the loan and move the missed payments to the back. But that doesn't get decided until you start paying your mortgage again.

DEREK REICH: She did say, if you didn't make the big lump sum and you didn't qualify for a modification, you're going into foreclosure.

ARNOLD: Which of course scared him.

REICH: I am completely uncomfortable being at the mercy of the mortgage company at the end of this. I don't trust them. And I mean, I get different answers every time I talk to somebody.

ARNOLD: The Mr. Cooper company also declined to discuss any particular homeowner but said in a statement, quote, "we know this is a confusing and incredibly stressful time for many of our customers, and we are dedicated to supporting them and finding solutions."

But Reich says with this company talking about foreclosure and balloon payments, he doesn't want any part of that. And he says he's going to do whatever it takes to pay his mortgage, even though that sounds like it's going to hurt him badly financially.

REICH: My feeling is, right now, is I'm going to raid my retirement. I don't know how far I can go because my retirement took a huge hit, like everybody else, when the stock market crashed.

ARNOLD: Diane Thompson says that people just need to know what's going to happen at the end of this break in their mortgage payments.

THOMPSON: We absolutely need Congress to step in here so that there's a simple, clear path. The simplest, the easiest thing to do for people who've missed mortgage payments is simply to put those payments on the back end.

ARNOLD: That way, she says, Reich and lots of other homeowners wouldn't have to be scared about being treated unfairly later and winding up in foreclosure. And, actually, the CEO of the Mr. Cooper company tells NPR he thinks making that the default option is a good idea, too.

Chris Arnold, NPR News.

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