The COVID-19 pandemic has made it harder for millions of homeowners to pay their mortgages. To reduce the risk of widespread foreclosures, Congress recently passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Pub. L. No. 116-136 (Mar. 27, 2020). The CARES Act gives some borrowers temporary protection from foreclosure. But about a third of all borrowers are not covered. This article explains who is covered by the CARES Act, what it offers, how to help those who are covered, and how to help those who are not.
Homeowners Protected by the CARES Act
The CARES Act mortgage relief provisions apply to “federally backed mortgage loans,” defined as first or second mortgages on 1–4 family homes (including cooperative and condominium units) issued, purchased, or backed by the following agencies:
- • Fannie Mae or Freddie Mac;
- • U.S. Department of Veterans Affairs (VA);
- • Federal Housing Administration (FHA), including home equity conversion (HECM) reverse mortgages, and mortgages under the Indian Home Loan Guarantee program; and
- • U. S. Department of Agriculture (USDA).
A servicer’s website may show that the servicer is taking requests for forbearance, but eligibility can only be confirmed by determining if a loan is federally backed. A first step is to use the look-up tool on the Fannie Mae and Freddie Mac websites:
- • Fannie Mae: http://www.knowyouroptions.com/loanlookup
- • Freddie Mac: https://ww3.freddiemac.com/corporate
Both require the address of the mortgaged property and the last four digits of the borrower’s Social Security number. Many lenders use Fannie and Freddie’s forms, but use of such forms does not mean Fannie or Freddie owns or guarantees the loan. If the look-up tool does not show that either Fannie Mae or Freddie Mac owns the loan, look at the borrower’s closing paperwork or monthly statement.
Indications of other federally backed loans include:
- • VA loans: The security instrument will include a clause saying, “THIS LOAN IS NOT ASSUMABLE WITHOUT THE APPROVAL OF THE DEPARTMENT OF VETERANS AFFAIRS OR ITS AUTHORIZED AGENT.” The HUD-1 or closing disclosure may include a charge for a “VA Funding fee,” but not all VA loans require this fee.
- • FHA loans: Normally the loans have an FHA case number at the top of the note and security instrument. HECMs usually say “Home Equity Conversion” on the note and security instrument. Forward mortgages normally show a charge for the FHA Mortgage Insurance Premium or “MIP” on the HUD-1 or closing disclosure. This charge will also appear on the borrower’s monthly statement. Unfortunately, some loans that went into default during the housing crisis were stripped of their FHA-insured status. Borrowers were notified of this change, but otherwise, the only way to know is to ask HUD’s National Servicing Center at 877-622-8525.
- • USDA loans: There will usually be some indication on the HUD-1 or closing disclosure and there may also be a guarantee attached to the note.
If the borrower does not have any paperwork, try looking up the security instrument at the recorder’s office. Many now make documents available online. Another option is to call the servicer but getting through to someone with accurate information about the loan investor may be difficult.
A more reliable method for obtaining this information is to send a “Request for Information” (RFI). An RFI that seeks the identity of the mortgage owner is treated differently than other RFIs, as discussed in NCLC’s Mortgage Servicing and Loan Modifications § 188.8.131.52.3. It must be responded to by the servicer within ten business days (rather than thirty), and the servicer is not permitted to extend the response time as can be done for other RFIs.
Critically, the RFI must be sent to the servicer’s “exclusive address” for receipt of RFIs. See NCLC’s Mortgage Servicing and Loan Modifications § 3.3.6. Check a recent account statement or the servicer’s website for the appropriate address to send requests. A sample RFI for the identity of mortgage owner is provided in NCLC’s Mortgage Servicing and Loan Modifications Appx. E.2.7.
Assistance for Homeowners with Federally Backed Mortgages
If the borrower has a federally backed mortgage loan, the CARES Act provides two kinds of relief: a foreclosure moratorium and the right to a forbearance.
Foreclosure Moratorium. CARES Act § 4022(c)(2) forbids servicers of federally backed mortgage loans from “initiat[ing] any judicial or nonjudicial foreclosure process, mov[ing] for a foreclosure judgment or order of sale, or execut[ing] a foreclosure-related eviction or foreclosure sale” through May 17, 2020. This applies only to occupied properties and does not require the homeowner to take any action. Nevertheless, contact the servicer’s attorney to ensure that any scheduled foreclosure is cancelled.
Forbearance of Mortgage Payments and How to Get One. A forbearance is a temporary suspension of the borrower’s duty to make full mortgage payments and the mortgage creditor’s right to enforce any delinquency. CARES Act § 4022(b) requires servicers of federally backed mortgage loans to grant forbearance requests from borrowers “experiencing a financial hardship due, directly or indirectly, to the COVID-19 emergency.” The language of the act is mandatory. The servicer may not require anything “other than the borrower’s attestation to a financial hardship caused by the COVID-19 emergency.” See CARES Act § 4022(c)(1). Once the borrower has affirmed the COVID-related hardship, the servicer must provide the forbearance. Although some servicers have ignored this requirement, CARES Act § 4022(b)(1) explicitly provides that borrowers are eligible “regardless of delinquency status.” It does not matter if the borrower is delinquent at the time of application or was delinquent before the President’s March 13, 2020 emergency declaration.
Borrowers may request forbearance at any time during the “covered period.” Likely due to a drafting error, the CARES Act does not define “covered period” for purposes of the forbearance provision. If construed based on other similar provisions in the Act, the covered period should be at least as long as the duration of the COVID-19 emergency declared by the President on March 13, 2020. Hopefully this will be clarified in future legislation.
The CARES Act § 4022(b)(3) provides that no fees, penalties, or interest beyond the amount that would be charged if the borrower was making timely payments shall be charged or shall accrue during the forbearance period. Under CARES Act § 4021, the borrower’s credit report will continue to show the same status as before the forbearance. If the borrower was current, the loan will be shown as current during the forbearance (or delinquent if the borrower was behind when the forbearance started). This part of the Act applies to all mortgages—even those not federally backed.
Forbearance Application Extends the Foreclosure Moratorium. Under RESPA’s Regulation X, a request for forbearance is a borrower application for loss mitigation, and payment forbearance may be offered to a borrower as a temporary loss mitigation option even if a complete loss mitigation application has not been submitted to the servicer. This exception to the servicer’s duty to work to complete the borrower’s application is discussed in detail in NCLC’s Mortgage Servicing and Loan Modifications § 184.108.40.206. Regulation X, 12 C.F.R. § 1024.41(c)(2)(iii), provides that, if a borrower is performing under a forbearance plan, a servicer shall not make the first state law foreclosure notice or filing and shall not move for foreclosure judgment or order of sale, or conduct a foreclosure sale. While the CARES Act foreclosure moratorium will end on May 17, 2020 (unless it is extended), borrowers will continue to be protected after that date by Regulation X for the complete period of their forbearance.
The CARES Act says the initial forbearance must be “up to 180 days.” Fannie Mae, Freddie Mac, FHA, and the other federally backed loan programs have created different policies to implement the CARES Act and they should be reviewed. Some servicers automatically granting the full 180 days at once and others grant shorter initial periods that can be extended. The Act also requires servicers to grant a 180-day extension (after the first 180-day forbearance) upon a borrower’s request. The servicer must also terminate the forbearance early upon request.
What Happens at the End of the Forbearance? The principal, interest, and escrow payments that would have come due during the forbearance do not go away. The borrower is still legally obligated to make them. The CARES Act does not say anything about how these payments are to be made. Each federally backed mortgage program has issued guidance on how servicers should proceed.
Generally, borrowers have the option to make the missed payments in a lump sum, through a repayment plan that adds a portion of the missed payments to the regular monthly payment, or a loan modification. If the borrower cannot afford a lump sum or repayment plan, servicers must evaluate the borrower for other options, which are summarized below.
NCLC’s chart, Summary of Foreclosure Alternatives for Borrowers with COVID-19 Hardships (updated April 21, 2020), is a key resource summarizing available options for each type of mortgage loan, with links to applicable guidances, significant forbearance provisions beyond the CARES Act, and post-forbearance options. The chart is summarized below as:
- • Fannie Mae: Servicers must contact borrowers at least thirty days before the forbearance ends and must evaluate borrowers for one of several loan modification options. These are summarized in Lender Letter LL-2020-02. Options include Extend Mod for Disaster Relief, Cap and Extend Mod for Disaster Relief, a Flex Mod, and (beginning January 2021) a new Payment Deferral program. For the disaster-based options that are used for COVID-19, such as Extend Mod or Cap and Extend Mod, the borrower must have been current or less than thirty-one days delinquent as of March 13, 2020. Borrowers may need to submit detailed financial information when applying for one of these options. However, these options generally may be offered without receiving a complete loss mitigation application (called a “Borrower Response Package”) from the borrower.
- • Freddie Mac: Servicers must contact the borrower at least thirty days before the forbearance ends. If the borrower was more than one payment behind before the COVID national emergency was declared on March 13, 2020, the borrower will have the standard loss mitigation options. Otherwise, if the loan was current or less than thirty-one days delinquent, the servicer will review the borrower for the following options in order: reinstatement (lump sum payment) or a repayment plan, an Extend Modification, Cap and Extend Modification, a Freddie Mac Flex Modification, short sale, or deed-in-lieu of foreclosure. If the servicer cannot reach the borrower by phone at the end of the forbearance, and the borrower is eligible for a streamlined offer for a Flex Modification, the servicer must send the borrower an offer for a Flex Modification. These options are summarized in Bulletin 2020-4.
- • VA loans: Servicers should review borrowers for loss mitigation options at least thirty days before the end of the forbearance. This includes all loss mitigation options described in the standard VA Servicer Handbook, including those related to disasters. VA Circular 26-20-12 explicitly states that servicers must not require a borrower who receives a CARES Act forbearance to make a lump sum payment after the forbearance period ends.
- • FHA loans: Before the end of the forbearance, the servicer must evaluate the borrower for a COVID-19 National Emergency Standalone Partial Claim, as discussed in Mortgagee Letter 2020-06. Borrowers who can afford their pre-crisis payment and who were less than thirty days past due as of March 1, 2020 may be offered a partial claim. If that is not sufficient to bring the borrower current, or if the borrower is not eligible for a partial claim, the servicer must evaluate the borrower for all other loss mitigation options available under the standard waterfall discussed in Handbook 4000.1 (Section III.A.2.k).
- • USDA Guaranteed loans: At the end of the forbearance, the servicer must determine if the borrower can resume regular payments and, if so, offer the borrower a repayment plan. At the borrower’s request, the servicer shall extend the loan term by an amount at least the length of the forbearance. See USDA COVID-19 Announcement (Apr. 15, 2020). If the borrower cannot resume normal payments, the servicer must evaluate the borrower for all of the options in the Loss Mitigation Guide.
Assisting Homeowners Who Do NOT Have a Federally Backed Mortgage Loan
If a homeowner has a mortgage loan that does not meet the definition of “federally backed mortgage loan,” CARES Act protections do not apply (except for the credit reporting provisions in CARES Act § 4021, discussed above).
State Foreclosure Relief. Many states have adopted broad foreclosure moratoriums that protect borrowers regardless of loan type, and some states have instituted mortgage loan forbearance programs. For a continuously updated list, see NCLC’s Major Consumer Protections Announced in Response to COVID-19. Another compilation from the National Housing Law Project focuses on evictions but has information on foreclosures as well.
Voluntary Federal Guidance. Federal bank regulators have issued guidance encouraging institutions to work with borrowers and relaxing some standards that may previously have limited a servicer’s flexibility to offer relief.
How to Get Non-CARES Act Relief and What to Ask For Borrowers should contact their servicer by phone or online. Online may be the faster option as servicers are currently overwhelmed by the number of calls they are receiving. Log in to the borrower’s account and see what options the servicer is offering. It may be possible to apply online.
Borrowers can also request assistance by writing to the servicer. Check the servicer’s website or a recent account statement for the appropriate mailing address. Letters to the wrong address may be delayed or lost (or not effective if intended as a Request for Information). Frame the letter as a Request for Information (RFI) about loss mitigation options. Such a letter will be governed by the response rules in RESPA’s Regulation X. A sample RFI borrowers may use to ask about available loss mitigation options can be found here (PDF version) (MS Word). A sample RFI that advocates may use for information about a loss mitigation application can be found at of NCLC’s Mortgage Servicing and Loan Modifications Appx. E.2.7. There is a private right of action to enforce these rules.
Helping All Borrowers—Whether Covered by the CARES Act or Not
Regulation X, under the federal Real Estate Settlement Procedures Act (RESPA), prevents loan servicers from taking the first step to initiate foreclosure proceedings under state law during the first 120 days after a borrower becomes delinquent, as discussed in NCLC’s Mortgage Servicing and Loan Modifications § 3.8.7. This applies to all “federally related mortgage loans,” which is different and much broader than the CARES Act’s definition of “federally backed mortgage loans.” Federally related mortgage loans include nearly all residential mortgages and reverse mortgages in the United States. See Reg. X, 12 C.F.R. § 1024.2(b); NCLC’s Mortgage Servicing and Loan Modifications § 3.2.1.
During the early months of a delinquency, Regulation X § 1024.39 mandates that servicers take affirmative steps through verbal and written solicitation to engage borrowers in the process of submitting a loss mitigation application for evaluation. See NCLC’s Mortgage Servicing and Loan Modifications § 3.7.
Tips for Homeowners
- • Servicer call centers are currently overwhelmed; borrowers should try applying online through the servicer’s account portal.
- • When making a request by phone or by letter, borrowers with a financial hardship due to the COVID-19 emergency should state that clearly.
- • Find out how long the forbearance will last. If borrowers’ financial problems have not been resolved before the end of the forbearance, request an extension before the forbearance ends (borrowers are entitled to a total forbearance period of up to 360 days under the CARES Act).
- • Find out how the borrower will be required to make up the payments at the end. Making a lump sum payment will be impossible for most borrowers; be prepared to request other arrangements.
- • If the borrower has an escrow account, ask how escrowed items will be paid during the forbearance. The servicer should continue to pay them if the borrower has an escrow account. But otherwise, if the borrower cannot continue those payments, the borrower should contact each payee.
- • Borrowers who do not have an escrow account should continue to pay their property taxes, insurance, HOA fees, and other home-related items, if possible.
- • Borrowers who believe they have been improperly denied a forbearance or have other problems with their servicer should submit a complaint to the Consumer Financial Protection Bureau using its complaint portal.
To Request Forbearance or Not?
If the Borrower Can Still Afford to Make the Payments, it is better to continue making them. Payments skipped under the forbearance will still become due sooner or later. Borrowers may not be satisfied with the repayment options available at the end of the forbearance. There is a risk that a servicer will make a mistake when processing the forbearance, and unwinding such errors can be difficult.
If the Borrower Cannot Afford to Continue Paying, requesting a forbearance is almost certainly a better option than simply defaulting on the loan. Loans in default accrue extra fees, such as late charges and property preservation inspections. The servicer will eventually begin to process the loan for foreclosure. And even if the borrower ultimately reinstates the loan by making the missed payments, a default and foreclosure will harm the borrower’s credit more than a forbearance. Consumers with payment problems should contact their servicer before they miss a payment.
- • NCLC’s Mortgage Servicing and Loan Modifications includes extensive details on loan modifications and working with loan servicers.
- • NCLC’s Major Consumer Protections Announced in Response to COVID-19 is continuously updated with state and federal protections for homeowners.
- • NCLC’s COVID-19 web page has continually updated information on homeowner protections, pending legislation, and recommendations for new protections.