22.214.171.124 The Terms of CARES Act Forbearance
Forbearance under the CARES Act suspends the borrower’s obligation to make ongoing payments as they become due under the mortgage. The principal amount due under each payment subject to forbearance remains a debt the borrower must repay. Similarly, interest accrues with each scheduled payment coming contractually due during forbearance. If a borrower’s scheduled payment of $1100 includes $800 for interest and $300 to be applied to principal, the borrower owes $6600 at the end of six months of forbearance. The key benefit of forbearance is that it eliminates the contractual consequences of not having made the payments on time. The CARES Act states that during forbearance, “no fees, penalties, or interest beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the terms of the mortgage contract, shall accrue on the borrower’s account.”42 In addition to barring assessment of late fees, this language should preclude the lender from taking any other actions that a payment default would trigger. These would include assessing any default-related fees, penalty interest, or accelerating the loan. In addition, the dual tracking prohibition of the RESPA servicing rules bars a servicer from taking the first action to institute foreclosure or complete a foreclosure sale as long as the borrow is in participating in a forbearance plan.43 Finally, if the loan was current as of the inception of the forbearance the servicer must report the account to credit reporting agencies as current during forbearance.44
The CARES Act does not address what happens with obligations to pay taxes and insurance during a forbearance. RESPA prohibits a servicer from imposing force-placed insurance when a borrower ceases making payments.45 On the other hand, RESPA does not require servicers to advance property taxes after the loan is thirty or more days delinquent.46 As a practical matter, servicers will likely continue to advance sums due for taxes and insurance during forbearance. When assisting clients move from forbearance to a post-forbearance reinstatement option, advocates must pay careful attention to how escrow accounts are treated. These options are discussed in more detail below under the treatment of post-forbearance options. Generally, amounts that the servicer advanced (actually paid out) for taxes and insurance during forbearance will be subject to a deferment or else included in the unpaid principal balance of a modified loan. However, an escrow shortage found upon a later account review could create payment shock for the borrower. Advocates need to familiarize themselves with how particular programs allow repayment of an escrow shortage.
Borrowers with CARES Act forbearances are allowed to make monthly payments during forbearance, and in fact, many have. However, the CARES Act does not provide any right to extend forbearance protection based on made payments. It simply provides a number of days for forbearance.
42 CARES Act § 4022(b)(3).
43 12 C.F.R. § 1024.41(c)(2)(iii).
44 CARES Act § 4021. On the other hand, if the account was delinquent before the forbearance period began, the servicer may continue to report the loan as delinquent unless the borrower brings the loan current. Id.
45 12 C.F.R. § 1024.17(k)(5)(i).
46 12 C.F.R. § 1024.17(k)(2).