Like millions of homeowners, Gregg Pupecki of Beach Park accepted mortgage forbearance — an interest-free pause in his payments — during the coronavirus pandemic.
A first-time homeowner, Pupecki loves his two-story house, which he bought in 2012. So he paid attention when he got a notice from his loan servicer in February demanding an immediate payment of $12,475 “to bring your loan current.”
“Failure … may result in fees and the loss of your home due to foreclosure,” the document read.
His original lender, Chase Bank, offered the forbearance — essentially a pause in having to make the payments on his 30-year mortgage without racking up extra interest or hurting his credit — on his FHA-backed loan.
Sometime later, the loan was transferred to Midland Mortgage of Oklahoma City, and it demanded that all of the forbearance payments be made immediately.
After the Chicago Sun-Times contacted Midland’s corporate parent, MidFirst Bank, the loan servicer withdrew the demand and offered Pupecki what federal law requires in his case: a choice to either exit forbearance and put the unpaid payments at the back of his loan interest-free or to stay on forbearance for another three months, with the option, if Pupecki wanted, for three months more.
After consulting a housing counselor, he decided to stay on for at least another 90 days while he waits for his industry to come back to life.
“It was supposed to help you,” the far north suburban resident says of the COVID-19 mortgage forbearance he’d accepted last spring following the loss of his job at a marina last year when the economy nosedived.
When he saw that his new loan servicer was demanding a lump-sum repayment, he says, “I was, like: That’s not helpful.”
The bank didn’t respond to requests for comment.
Pupecki is hardly the only homeowner facing a confusing situation after accepting COVID-19 mortgage forbearance. The federal Consumer Financial Protection Bureau got more than 3,400 consumer complaints in March about mortgages. Its database includes complaints regarding immediate demands for payment, poor communication by loan servicers and even people having had their mortgages placed into forbearance without them having asked for that.
The agency, which estimates there could be 1.7 million delinquent loans by September, is proposing rule changes governing loan servicing to help prevent what it describes as avoidable foreclosures.
“More borrowers are behind on their mortgage than at any time since the height of the Great Recession,” according to Dave Uejio, the agency’s acting director. “Communities of color have been hit hard by the pandemic, and the latest data show that many borrowers are still hurting.”
Congress included the mortgage forbearance provision in the CARES Act it passed in March 2020 after the coronavirus pandemic struck. Under the law, homeowners with federally backed mortgages — such as those backed by Fannie Mae, Freddie Mac, the Federal Housing Administration, the Department of Housing and Urban Development, the Department of Veterans Affairs or the Department of Agriculture — could get forbearance for up to one year without harming their credit or accruing extra interest.
In February, HUD lengthened that one-year limit for certain borrowers, letting them ask for two additional three-month extensions.
Diane Cipollone, a housing expert and consultant with the National Fair Housing Alliance, says borrowers need to understand that, after they resume their normal monthly mortgage payments, the unpaid chunk of money from the forbearance period will sit at the end of their loan and come due as a balloon payment.
That balloon can be handled relatively easily, though, if the homeowner decides to sell before the mortgage is finished or refinances.
The trickiest part for some homeowners is finding a job in time to start resuming their regular monthly payments.
Cipollone urges people to take advantage of free weekly credit reports offered by Equifax, Experian and TransUnion through April 20, 2022. Normally, consumers can get one free report from each agency a year. During the pandemic, that’s been increased to one every week.
“This is significant because some mortgage servicers are incorrectly reporting borrowers as ‘late’ on their payments if they are in a COVID-related forbearance plan,” she says.
About 70% of home loans are federally backed. Many consumers with home loans held by banks or in private securities also accepted forbearance offers, but those aren’t covered by the CARES Act.
Attorney Sarah Bolling Mancini of the National Consumer Law Center worries about borrowers reaching the end of forbearance with no clear idea of what’s next.
Especially with privately held mortgages, Mancini says, “It feels like they are at the whims of the lender or servicer.”