WASHINGTON – Legislators argued on Thursday whether the recent processing of leniency applications by mortgage service providers complies with the Coronavirus Aid, Relief and Economic Security Act.
The CARES law allows borrowers with a federal mortgage to apply for up to 12 months of leniency – split into two 180-day steps – if they encounter financial difficulties due to COVID-19.
At a hearing with the House Financial Services Committee subcommittee, Democrats attempted to find out why some borrowers said they were unaware of their options and had difficulty indulging for the time allowed. Some servicers are said to involve borrowers in shorter 90-day plans.
The legislature accused the soldiers of not taking the law seriously enough.
"This program, which we set up in Congress, was received by those in charge of recording these forbearance agreements – the servants. It was received by them as an honor system," said Rep. Al Green, D-Texas, chairman by the Subcommittee on Supervision and Investigation. "We never intended this to be an honor system."
"This program, which we set up in Congress, was received by the people responsible for recording these forbearance agreements – the servants. It was received by them as an honor system," said Rep. Al Green, D-Texas.
Still others, including Andy Barr, R-Ky., See the CARES law's indulgence component largely as a success story.
"This shows that the government and the private sector can work together in times of crisis and that the private sector has acted responsibly in the interests of homeowners without being mandated by the state," he said.
According to some investor guidelines, servicers have been authorized to grant grace periods of less than 180 days when done at the borrower's request or with the borrower's consent.
MP Nydia Velazquez, DN.Y., expressed the four witnesses who testified at the hearing whether the servicers were providing misleading information to borrowers about their repayment options or not, and whether this prevented borrowers from asking for leniency at all . However, no witnesses from a mortgage service were among the witnesses.
"Do you feel that misinformation about repayment options prevents borrowers from accessing the leniency relief granted to them under the CARES law?" Velazquez said to the witnesses, which included a housing consultant, a real estate agent and a consumer advocate.
The CARES law did not specify how or when borrowers would make skipped payments after a grace period, but numerous agencies and some service providers have suggested that homeowners can wait for the entire term of the loan and that missed payments can be offset at once.
"The people we speak to are amazed by this lump sum payment," said Marcia Griffin, founder and president of HomeFree USA, a nonprofit housing consultancy. "It causes a lot of inappropriate headaches in these communities, and borrowers are really concerned about their solvency, even at some point."
Donnell Williams, president of the National Association of Real Estate Brokers, even proposed that Congress provide television and radio advertising to raise awareness of borrowers' ability to be lenient and their rights to make payments.
"I think servicers need to get the information out of the borrower's rights, to the community and to the borrower … and we also need to have data collection services that have to deliver that information and data to the [Consumer Financial Protection Bureau] and to Congress." said Williams.
Much of the discussion at the hearing was also about the Democrats' ambitious Omnibus Emergency Solutions Act [HEROES Act] for health and economic recovery. The proposed stimulus package to deal with the economic impact of the pandemic was passed by parliament in May, but has a weak future in the Republican-controlled Senate.
The bill would change the current stimulus package so that borrowers of most single family loans, even if they are not supported by the government, could be lenient for up to a year. The bill would also automatically include any borrower who is in default after March 13th in a 60-day indulgence plan once that borrower misses a 60-day mortgage payment.
"According to the US Census Bureau, more borrowers are not paying their mortgages than forbearance agreements with their service providers," said Alys Cohen, a lawyer with the National Consumer Law Center. "People who have already delayed their mortgages have taken out the loan and should not face enforcement and more support."
However, Barr described the provision as unnecessary to automatically include criminal borrowers in forbearance plans and was concerned that this could limit a borrower's options.
"Apparently, the authors of the HEROES Act believe that introducing mandatory automatic leniency for all borrowers and restricting the ability to change loans will benefit borrowers," he said.
Ed DeMarco, president of the Housing Policy Council and former incumbent director of the Federal Housing Finance Agency, agreed with Barr that automatic indulgence plans could hamper borrowers.
"The idea of ensuring that the servicer actually stays in touch with his customer and that the customer stays in touch with the servicer will lead to a better outcome for the different situations that we will see here," he said.
DeMarco also highlighted the transition that borrowers will have to make after their grace period, stressing that "leniency towards repayment is not a one-size-fits-all approach".
Cohen pushed for the next round of fiscal incentives to include laws that would make it easier for borrowers to move into repayment plans.
"At this point, what we want to see and what is included in the HEROES Act and which could be included in the Senate Legislature are cheaper lenient repayment options that are mandatory," she said.