Updated at 3:28 p.m. ET
Homeowners who've lost their jobs or income say their lenders are demanding punishing terms if they take part in what's supposed to be a government effort to help them.
To avoid a wave of home loan defaults, Congress and regulators told lenders that they have to let homeowners defer payments if they've been hurt financially during the coronavirus crisis.
Some homeowners say that's working well, but others say confusion abounds.
They can't get through on the phone to their lender, or they're being told different things each time they call. And some homeowners say their lenders are telling them that to get the help, they'll later have to come up with a big lump sum payment that they can't afford.
"All we're looking for is help," says Julia Hansen. She and her husband, Jim, live in Maui, Hawaii, and lost their incomes as the tourism business shut down. Jim managed a restaurant.
They called their lender, Freedom Mortgage, to ask about deferring their payments. That's called a forbearance. They say they were told they could defer their payments for three months, but with one alarming catch: They'd have to then come up with four months of payments all at once — in one balloon payment — to make the loan current.
"At that point, if you don't pay it, you go into foreclosure," Julia Hansen says she was told by a Freedom Mortgage representative. In other words, she and her husband would have to come up with a lump sum of about $8,000, which seemed unreasonable because Jim lost his job and they have no income until they start getting unemployment benefits. And they don't know when those benefits will start coming or how much they'll be getting.
On top of that, the couple says that Jim's mother passed away last year and that caring for her depleted almost all their savings.
"I feel that the government is trying to help us, and I feel like Freedom Mortgage is trying to rip us off," Hansen says. "I'm very disappointed and angry at them."
Several other Freedom Mortgage customers also complained to NPR. The company said in a statement that it's "working hard to help our customers."
But other lenders are giving homeowners a better option. They're agreeing to tack those missed payments onto the end of the loan term. That way, homeowners can just resume their regular mortgage payments when they can afford to without paying any lump sum to catch up.
Freedom Mortgage, in a statement to NPR, at first claimed that it's not allowed to do that because "under current federal requirements, those amounts are not added to the end of the mortgage but rather are due at the conclusion of the forbearance period." And the company said the requirements did not provide for "any extension of the term of the mortgage."
But that does not appear to be true.
Federal regulators say there are options beyond a big balloon payment for borrowers, including moving the missed payments to the back of the loan term.
After NPR reached out to regulators, Freedom Mortgage changed its statement, removing the line about how it was not allowed to extend the loan term. When NPR pointed out to the company the options available to borrowers, Freedom Mortgage then stated in an email that it will "continue to offer all options that are available under the various government programs."
Housing advocates say moving the deferred payments to the back of the loan is the way the forbearance should work for most people.
"If you've had a financial hardship, you're not likely to suddenly have a large sum of money to catch up many months' or even a year's worth of mortgage payments," says Mike Calhoun, president of the Center for Responsible Lending.
In fact, he says, the rules require that for the vast majority of home loans, borrowers who get hurt financially in this crisis can defer mortgage payments and then get back on track without their payments going up.
"It is clear that the borrowers should get relief," Calhoun says. "And at the end of the period of forbearance, they are not required to pay in a lump sum, unless for some reason they are able to do so at that time, which will likely be very rare for borrowers, given this kind of crisis."
At least some banks appear to be getting on track with that. Susan Schwartz, who lives near Nashville, Tenn., is self-employed and lost her income. She says her lender, Bank of America, first told her she'd be hit with a big balloon payment to catch up.
"My reaction to that was, like, what?" Schwartz says. "Why am I hearing this? This is just nothing? Nothing is being offered."
But she says a week later, the bank told her that the policy had changed — no lump sum payment. She could just tack those deferred payments onto the end of her loan so her payments wouldn't go up.
"It was a relief to me," she says. "It was a relief probably to thousands and thousands and thousands of other individuals."
Bank of America confirms that people can choose that option so their monthly payments stay the same after the period of forbearance ends.
But many homeowners still appear to be running into problems. Phone representatives are working remotely and hold times are long. Call volume is soaring.
"Everyone's scared," says Brad Twiss, a real estate agent in Portland, Ore. He says some people he sold houses to can't get through to their lenders on the phone after waiting on hold for hours. Those who do, he says, "are hearing drastically different things from every individual lender." And some are being told they have to make one of these big balloon payments to catch up at the end of the forbearance.
"It is evolving so quickly," Twiss says. "Every hour, even some big banks, the website will change about what the guidance is. ... Everyone is just, their hair is on fire."
Calhoun says there's another big problem at play. The government ordered this payment relief but without a clear way for many lenders to pay for it. "That is very much what it is," Calhoun says. "And the size of this is enormous."
If you're a homeowner, the company you send your mortgage check to is often just a middleman acting as what's called a loan servicer. You send the loan servicer a check, and it hands the check to somebody else: investors in mortgage-backed securities. If you don't send the loan servicer a check, the company still needs to keep paying those investors, and if it doesn't, then that loan-servicing company is in trouble. With so many homeowners getting hurt financially and asking to defer payments, this involves billions of dollars' worth of payments.
"There is panic among particularly small lenders," Calhoun says. He says many are in a tough spot and worried about their cash flow. The situation "desperately needs a solution to cover that, so they're in a position where they can help the borrowers without going bankrupt," he says.
The mortgage industry is lobbying hard for the federal government to give these companies a lifeline — access to the money they need.
Meanwhile, a lot is changing quickly. So if you tried to get help from your lender and couldn't, try again a week later. You might get a better answer and be able to extend your loan term to avoid a big balloon payment if you can't afford that.
In the case of Freedom Mortgage, the company says 70% of the loans it services are guaranteed by the Federal Housing Administration or the Department of Veterans Affairs — often referred to as FHA and VA loans.
NPR fact-checked the company's original statement that under federal requirements, when a borrower gets a forbearance, the "forborne" amounts "are not added to the end of the mortgage but rather are due at the conclusion of the forbearance period."
"FHA never requires a lump sum payment at the end of a forbearance period," a senior official at the Department of Housing and Urban Development told NPR. The official was speaking on background and referring to FHA loans.
The official said the FHA has "many workout options available to borrowers." In fact, the official said, the agency has created a special COVID-19 method for lenders to move the deferred payments to the back of the loan term. That's done through a separate loan to be paid off "when the first mortgage is paid off or the borrower sells the property," the official says.
Likewise, for government-backed loans guaranteed through Fannie Mae and Freddie Mac, extending the loan term is among the options for helping borrowers get back on track after a forbearance, according to their federal regulator and guidance from Fannie and Freddie.
After NPR reached back out to Freedom Mortgage, the company said in an email, "we are not saying that payments cannot be added to the end of the loan at the termination of the forbearance period. Freedom is required to follow the government guidance for loans backed by Fannie, Freddie, FHA, VA and USDA and will continue to offer all options that are available under the various government programs."
But the company said the FHA and VA have "approval requirements and documentation that must be collected from consumers to qualify for the various loss mitigation options." Freedom Mortgage urged regulators to remove any "hurdles" that could get in the way of homeowners protected by the CARES Act, the recently enacted coronavirus relief legislation.
For their part, Julia and Jim Hansen say they're reaching back out to the company to try to get a better answer.