Homeowners Face Confusing Signals On Loans Amid Stimulus Relief

With the stimulus bill known as the CARES Act, Congress said homeowners could skip mortgage payments for up to a year.

However, legislating something is not the same as making it so. Some loan servicers are telling homeowners they could be hit with balloon payments if they delay their mortgage payments.

The CARES Act, intended to help mitigate the economic damage being done by the coronavirus pandemic, lets homeowners with federally-backed mortgages skip payments for up to one year — but it does not specify the rules for repayment.

There’s a lot of confusion out there.

According to NPR, more than 3.4 million homeowners who’ve been hit with job losses or decreased income due to the pandemic are holding back on cutting those checks to pay the mortgage as the coronavirus pandemic continues. Delaying payments seems more dicey if the mortgage processor threatens that all the owed mortgage money gets paid all at once.

However, experts say this is not the way the CARES Act is supposed to work. Instead, homeowners should get a chance to extend the time period of their mortgages. In other words, the payments would be tacked on at the end of the loan.

Congress needs to act on this, said Diane Thompson, a former attorney with the Consumer Financial Protection Bureau. The rules should make it so that putting the payments on the back end of the loan is the norm. This could cut back on the bad information that consumers are getting hit with — even as they grapple with a pandemic’s economic mayhem.

“When servicers are telling homeowners that they have to make a lump sum payment, that’s contrary to the law and contrary to all of the guidance I’ve seen coming out from the various regulators,” Thompson said.

For their part, some banks are hiking credit requirements for mortgage borrowers even as the Federal Reserve has cut interest rate. And a company called Noah sees this confusing situation as an opportunity.

Noah founder Sahil Gupta recently told Karen Webster that his firm offers a novel approach to tapping home equity. Instead of refinancing a loan, Noah buys a portion of a homeowner’s equity for cash unfront, then gets the money and a share of any price appreciation back years later when the property owner sells.