The process for consumers to be approved for a forbearance in the COVID-19 pandemic is as simple as a phone call – no application or proof of hardship required. One expert said that’s probably for the best.

“I think that’s probably a good idea, given where we were in March and April and the job losses that we’ve seen,” Katten & Temple, LLP, Of Counsel Brian Levy said. “Having said that, Lending Tree came up with a study recently that said 70 percent of the people utilizing forbearance claimed they didn’t even need it. I found that absolutely incredible. The data that was coming out the first couple of months also said that 30 (percent) to 40 percent who elected to use forbearance went ahead and made their payments anyways! Again, remarkable.

“But maybe what’s happening is that people are just using it as a safety net in case they need it, in case their income is not there or in case they don’t want to have to dip further into savings.  I did hear that the 30 (percent) to 40 percent number did go down in the last data, so we may be seeing more people who really need forbearance that are using it as this downturn continues.”

Levy’s comments came during a recent virtual RESPRO session on the impact of COVID-19 driven measures on the mortgage and title industries.

Levy’s co-panelist was Loretta Salzano, partner at Franzen & Salzano.

The session, moderated by Ballard Spahr Partner Richard Andreano, discussed forbearance and foreclosure relief programs on servicing operations, regulatory loosening of work-at-home restrictions, and other pandemic issues.

Servicing trends

The Department of Housing and Urban Development is instructing mortgage servicers to offer deferred or reduced payments for up to a year for single-family homeowners with Federal Housing Administration-insured mortgages experiencing financial hardship as a result of the coronavirus.

In addition, the Federal Housing Finance Agency announced that Fannie Mae and Freddie Mac also will extend their single-family moratorium on foreclosures and evictions to help at-risk borrowers and renters.

“At first, servicers were freaking out that even though borrowers didn’t have to make their payments, the servicers still had to make payments to the investors,” Levy said. “And they were very concerned about their liquidity positions as a result of that. It appears that crisis, if you will, has sort of resolved itself. All those servicers seemed to have found other sources of liquidity or were comfortable they could manage the payments they had to make. So those calls for liquidity facilities have really died down as the level of forbearance has stabilized.

“Now, the scramble is trying to deal with these modifications and resolutions for repayment options. The big issue now for servicers is going to be the repayment options as people get back on track.”

Levy added that the pandemic’s impact on the borrower has been understated, such as the next-to-impossible ability to get a cash-out refinance.

“Lenders are concerned that borrowers are going to take cash out and then immediately go into forbearance and not pay these loans,” he said.

Another problem is that, although modifications are not allowed to negatively impact a borrower’s credit score, they do still appear on credit reports, meaning a lender can consider it.

Levy said other servicing issues have been cleared up through regulatory guidance. For instance, borrowers who have done a forbearance can refinance to a lower rate as long as they make three timely monthly payments when the forbearance is over.

“And those borrowers who got a forbearance but decided to make their payments anyway, they can still get a refinance because it’s a no-harm, no foul kind of thing, which I think was a good clarification as well,” Levy said.

Levy, who also has discussed forbearance issues on his mortgage industry blog at www.mortgagemusings.com, predicted forbearance will have an impact on the industry for many years after the COVID-19 risk is gone. For example, repurchase issues will arise from loans that are unable to reperform and title companies are going to have to consider what happens with consumers who opted to repay their loans upon maturity with a balloon payment.

In addition, Levy said it’s important for Realtors to properly explain the latest forbearance developments to potential homebuyers.

“I’ve heard these rumors of Realtors telling potential homebuyers, ‘Hey you can buy a house now and not have payments for six months!’ That’s really irresponsible,” he said. “That’s the kind of thing that consumers need to get good information on and not be encouraged to do the wrong thing.”

Changes to how we work

Most states acted quickly to waive certain requirements so those in the settlement services could work securely at home and continue to serve borrowers.

Salzano said there is increasing momentum for the industry to come up with ways to continue allowing employees to work from home indefinitely.

“Hopefully we’ll continue to see that without more robust home office licensure,” she said. “In the lending industry, people were really surprised at how quickly we could get up, get secure and continue to serve consumers during a boom time without missing a beat. But the shift in how we do business is also shifting other things and creating other risks for lenders, real estate brokers and agents.

“Lots of companies had to get new technology to include closing gaps with increased security. Scams and fraud are on the rise. A lot of opportunists have used corona-themed emails as a way to install malware or introduce fake closing instructions.”

Salzano added that many people have seen their business continuity plans put to the test. She noted that there have been suggestions to revisit the 2007 interagency statement on pandemic planning.

“I certainly think we’ll see many lenders and many others in the industry reduce their in-office presence to reduce their overhead costs and renegotiate their leases,” Salzano said. “I already heard lots of folks talk about how they’re going to reconfigure their workspace, that they’re doing it more like office shares, and they’ll have more common areas. People will come in in shifts. They are anticipating that as a way to keep working if we do have a resurgence of this disease, but even absent a resurgence, just to allow people to minimize their commute times, spend more time at home and increase efficiency.”

However, the pandemic has created new legal risks for employers along with the health risks. 

“You have to think of your vulnerable employees,” Salzano said. “What if you open and somebody doesn’t want to come back to the office? What are your rights? Are you allowed to require that person to come back to work? What if they do have a health concern?”

Salzano said employers must think about protections under the Americans with Disabilities Act, as well as ever-changing Occupational Safety and Health Administration guidelines, to ensure a safe work environment.

“Now more than ever, you have to be really careful about employee protections on all types of bases, and how you treat your employees in a way that’s legal and fair and equitable,” she said. “Since things are developing constantly, you might consider consulting with employment counsel if you don’t have an HR department, especially if you’re going to terminate someone or reduce their pay.”