You can skip mortgage payments, but what comes after that?
In March, like millions of others, Thomas Taylor saw his income plummet.
The global pandemic left the 42-year-old furloughed from his two bartending jobs and staring down a $2,600 monthly mortgage payment on his condo in Laguna Niguel, California.
Taylor reached out to his mortgage company for help but hit a wall. He wouldn't have to pay for six months, he recalled being told over the phone, but would then have to pay back all missed payments — $15,600 — in one lump sum.
"I couldn't come up with that in six months," he said. "No way, not with no income right now."
As the ranks of the unemployed have swelled, homeowners have flooded their mortgage companies with requests for relief. Millions signed up for so-called mortgage forbearance programs that let borrowers delay payments or make partial payments while they wait for their financial situation to improve.
But there's been mass confusion over how borrowers will pay back what they owe. And the fear of a looming lump-sum payment has caused some of them to skip the mortgage forbearance process altogether, sending them down risky alternative pathways.
Under the federal CARES Act stimulus law, borrowers with government-backed mortgages — through the Federal Housing Administration, the Department of Veteran Affairs, the U.S. Department of Agriculture, Fannie Mae or Freddie Mac — received the right to skip at least six months of payments if they have a financial hardship tied to the novel coronavirus.
That covers most borrowers. Those with private mortgages didn't get that guarantee. But many are still finding help through their financial institution.
The law still requires borrowers to pay back any missed payments but wasn't specific on how they'd do so. Government agencies insist borrowers with government-backed mortgages don't have to pay everything back at once.
However, consumer advocates say some mortgage companies have incorrectly told borrowers they must pay back all missed payments in a lump sum or have made vague comments that lead stressed-out consumers to assume that's the case.
A government inspector general this week dinged mortgage companies for providing "incomplete, inconsistent, dated, and unclear guidance" to borrowers on their websites.
Left to imagine the worst, borrowers said they used credit card charges or withdrew money from savings to stay current on their mortgage payments. Taylor turned to family for help. Another person decided to pay late, risking a late fee and damage to her credit.
Other repayment options are offered by servicers, such as loan modifications. But some advocates describe them as cumbersome. They worry that a foreclosure wave will follow once payments resume if the process isn't streamlined.
"It's a recipe for disaster," Bruce Marks, chief executive of the Neighborhood Assistance Corp. of America, said of the current system. "This is going to be a far worse mortgage crisis than in 2008. You are going to have many more homeowners lose their homes."
Government agencies say they are taking steps to limit confusion among borrowers and servicers. They've issued guidance to mortgage companies that lay out other repayment options companies must offer if borrowers can't afford a lump sum.
Those include repayment plans where a homeowner's monthly mortgage payment increases for a time to make up for missed payments. Other modifications extend the length of a loan and keep monthly payments the same or lower than before the forbearance.
Federal agencies have urged consumers to file complaints with the Consumer Financial Protection Bureau if they think their mortgage company isn't following the rules. On Monday, the Federal Housing Finance Agency, regulator of Fannie Mae and Freddie Mac, issued a news release to "combat ongoing misinformation."
"During this national health emergency, no one should be worried about losing their home," said the statement from FHFA director Mark Calabria. "No lump sum is required at the end of a borrower's forbearance plan for (Fannie Mae and Freddie Mac) mortgages."
The same is true for USDA, FHA, and VA loans, the Consumer Financial Protection Bureau says.
As the forbearance process moves forward, a lot rests on mortgage companies playing by the rules and being clear when doing so.
Even in normal times, the U.S. mortgage market is a complex place, where borrowers may not know who actually owns or backs their loan. Loans are sold from one entity to another, placing borrowers with new mortgage servicers that manage loans and pass along payments to investors.
Now homeowners are being asked to navigate that system amid a global pandemic and fear of an economic depression. Some consumer advocates say nonbank servicers that are not well-capitalized also have a strong financial incentive to discourage forbearance, because for a time they still must front missed payments to investors.