The housing crisis of 2008 was a hellish time for financially strapped homeowners.
Mortgage lenders often ignored pleas for assistance when borrowers fell behind on their loans. Or, a payment plan would offer a glimmer of hope, only to collapse into a sinkhole of paperwork and delays.
In the summer of 2008, the Neighborhood Assistance Corporation of America staged an event that promised a fast track for struggling borrowers to avoid foreclosure. The five-day event at the Capital Hilton in D.C. was called “Save the Dream of Homeownership.” Hundreds of NACA counselors, certified by the Department of Housing and Urban Development, were stationed throughout the hotel facilitating same-day mortgage restructurings that reduced people’s interest rates, their loan balances or both.
I watched as desperate homeowners formed a line that snaked around the block. Folks were sweating and, in some cases, swearing, holding folders stuffed with information about their financial situation.
Homeowners drove from as far afield as Mississippi and Massachusetts. I interviewed one Worcester, Mass., couple who were able to renegotiate their 11.875 percent loan to a fixed 5.25 percent for a monthly savings of $830. A homeowner from Jackson, Miss., was able to cut her mortgage debt by $20,000.
They were the fortunate ones. So many others couldn’t cut a deal and lost their homes during the Great Recession. Between 2007 and 2010, there were about 3.8 million foreclosures, according to the Federal Reserve Bank of Chicago.
With homeowners now facing another crisis, this time prompted by a pandemic, things are better, says Bruce Marks, chief executive and founder of NACA.
Marks should know. He saw the worst of the housing crisis and was highly critical of the response borrowers were getting from their mortgage servicers. Marks knew then, as he does now, that mortgage servicers are key to assisting borrowers when they can’t pay their mortgages.
This time, the government was quick to push companies to get people into forbearance plans without the hassle and heartache that was standard procedure during the housing crisis, Marks said. The sooner the problem is addressed, the more likely folks can keep their homes.
“I think servicers learned the lesson of the last mortgage crisis,” Marks said in an interview. “They realized that it was a failure to do modifications the old way, in which monthly payments would go up. I’m cynical of the banks, and I’m cynical of servicers. But I’ve got to say that for the most part, it’s a good news story.”
Under the Coronavirus Aid, Relief and Economic Security (Cares) Act, borrowers with federally backed loans could ask for an initial forbearance of up to 180 days. If additional relief was needed, they were entitled to a 180-day extension. Interest still accrues, but fees and penalties are waived. The Biden administration has extended the forbearance enrollment window through Sept. 30.
A new report by the Consumer Financial Protection Bureau reviewed data from 16 large mortgage servicers from December through April. The CFPB found that many servicers were initially overwhelmed as the pandemic resulted in millions of people losing their jobs. For example, one large servicer received about 650,000 inquiries to its call center in February 2021. The number increased to 750,000 in March and then dropped to 625,000 in April.
The uptick in March tracked the expiration of forbearances for borrowers who enrolled at the beginning of the pandemic and who were probably calling to discuss additional relief, the CFPB said.
As of July, more than 1.8 million borrowers were enrolled in active forbearance plans, the CFPB said.
“Many borrowers have already exited forbearance, and borrowers who remain on active plans are anticipated to exit through Fall 2021,” the agency report said.
There were some major stumbles at first. People couldn’t get through to their mortgage servicers, and when they did reach someone, they were told they could get a forbearance but would need to pay the full amount that was in arrears in a lump sum once the pause was over. This wasn’t true, and it unnecessarily frightened a lot of homeowners.
Borrowers with loans covered by the Cares Act have a number of payment options once their forbearance period ends. One option might involve taking the delinquent balance and adding it to the back end of the loan. The past-due payments would effectively extend the term of the loan.
The report from the CFPB is significant because the agency is making it clear that it intends to prioritize monitoring mortgage servicers and how they are dealing with struggling borrowers.
“The recently released metrics report indicated that many servicers are doing a reasonable job handling requests for assistance,” said Mark McArdle, the CFPB’s assistant director for mortgage markets, adding, “It also indicated that some servicers are outliers and will need additional follow-up.”
The agency has warned mortgage servicers to take proactive steps to assist borrowers, including dedicating resources and staffers to stay in contact with borrowers to ultimately reduce foreclosures and foreclosure-related costs. The CFPB said about 569,000 borrowers are in the early stages of delinquency but aren’t participating in a forbearance plan.
“The overall message is that the bureau will be watching closely this fall to see how servicers handle the wave of forbearance exits and take appropriate action as needed,” McArdle said.
Some homeowners will not be able to resume making payments on their mortgages, and that means some foreclosures are unavoidable. But the CFPB is doing what should have been done during the housing crisis. The agency is holding mortgage servicers accountable if they don’t do enough to help people avoid losing their homes.