Aaron Rodenberg thought, I gotta get ahead of this thing.
It was toward the end of March. Shutdown orders shrouded several states as COVID-19 barreled across the country.
The Evansville resident runs his own one-man construction outfit – kitchen and bathroom remodels, mostly, and he knew coronavirus would affect his business. If people were losing their jobs, they wouldn’t have money lying around to fix up their homes.
To be proactive, he applied for a mortgage forbearance through his bank, Fifth Third. He never heard whether he was approved or not, so he put next month’s payment into his checking account.
A few weeks later, something weird happened.
“I got a piece of mail (saying) my mortgage payment was overdue,” he said. “I thought, ‘well that’s ridiculous.’”
The payment was always auto-deducted, and the money still waited in his account. But there had been some confusion.
Turns out, Rodenberg had been approved for a forbearance. He just wasn’t notified. A Fifth Third associate told him over the phone it was for six months.
But because he’d seen horror stories online, he asked an important question.
When this forbearance ends, he said, am I going to owe all the missed payments at once? In one lump sum?
Yes, the associate said.
Luckily, that person was mistaken – but only partly.
Rodenberg and others who apply for forbearances won’t necessarily owe all the money as soon as the forbearance ends. That’s a huge relief, of course. A lump payment of thousands of dollars would shred the finances of anyone who lives month-to-month. If we had piles of extra cash, we wouldn’t be applying for forbearances in the first place.
But it is one repayment option for the millions of Americans who seek mortgage relief as they lose their jobs or battle back-breaking hospital bills amid a pandemic that has hurled traditional American life into the garbage.
According to a column from the Washington Post’s Michelle Singletary, scores of borrowers who applied for forbearances through the federal CARES Act were recently told their deferred payments would be due as soon as their forbearance ended. That was wrong, and the government is clambering to fix the problem.
Fifth Third spokeswoman Carrie Hagovsky said her bank offers customers three choices once a forbearance ends: the lump-sum route; a repayment plan that would run concurrently with your normal payments; or the possibility of a loan modification that would tack the missed payments onto the end of your mortgage.
Fifth Third lays out those options online.
“We’re definitely not going to push anybody into a situation where they would have to repay (immediately),” she said.
She claimed Fifth Third has tried to provide borrowers with as much information as possible, and she implored anyone with concerns to contact the bank immediately.
But she did admit there was some scrambling at the onset of the pandemic. Any bank or credit union employee will tell you that.
Around the time Rodenberg applied, private institutions and the federal government alike hustled to figure out how to offer relief to homeowners during an unprecedented disaster.
It’s that communication lapse that worries Rodenberg.
He eventually spoke with a second Fifth Third employee who told him his forbearance had been for three months – not six. And, despite what the first person said, he learned a lump-sum repayment wasn’t the default option.
Eventually, he canceled the forbearance.
“I wasn’t even thinking about it in terms of myself. I started thinking about it in terms of people who have actually lost their jobs, who are making no money. Who aren’t able to go to work,” he said.
He wondered: how would a lump sum repayment help anyone?
Know your terms
If you apply for a forbearance, you need to be rock-solid about the terms.
Depending on your institution, and even what type of mortgage you have, the stipulations could differ wildly.
Take Old National Bank. According to Chief Credit Administration Officer Denny Villines, ONB is offering mortgage deferrals.
If someone is having a hard time paying, they can push their payments for 90 days. When the lull ends, the missed payments get glued to the bank-end of the loan, and the customer can apply for an additional 90 days if their situation hasn’t improved.
“(But) it is important to note that Old National Bank is also a mortgage servicer, which means that we service loans for investors like Fannie Mae and Freddie Mac,” he said. “These are loans that Old National does not own. When we get a deferral or forbearance request on an investor loan, we must follow their guidelines, which may be different from ours.
“For example, some investors will call for all deferred payments to be made once the deferral period has ended.”
Because we’re talking about federally backed financial institutions – patron saints of needless complexity who would make even Rube Goldberg roll his eyes – none of those guidelines are uniform.
The Consumer Financial Protection Bureau’s website does its best to lay out stipulations for warring agencies such as FHA, USDA and others. Sometimes you can extend your loans and sometimes you can’t. Sometimes you have to pay everything back at once and other times you don’t.
The CFPB says anyone with a federally-backed loan should talk to their agencies directly. But if you’ve ever dealt with a giant bureaucracy like that, you know extracting information from them is about as easy as swiping a bear cub from an angry grizzly.
The best place to start may be the bank or credit union through which you got the loan in the first place.
Be careful and advocate for yourself. Once this disaster is over, you don’t want to battle another one.