Banks required balloon payments, stayed mum on foreclosure moratorium

Report exposes questionable practices in federal program for mortgage borrowers

National /
Sep.September 22, 2020 08:00 AM
(iStock)

(iStock)

Big banks led some consumers into financially risky mortgage agreements instead of offering the full relief program touted by the federal government, according to a report analyzing complaints.

Detailing the practices of 13 large banks in those cases, researchers found that banks regularly offered forbearance as the only option to homeowners — sometimes requiring balloon payments at the end of the grace period, or putting the loans in forbearance without getting the borrower’s permission.

Banks also often did not inform those borrowers of other options to refinance their mortgage and did not publicly advertise the federal government’s broad restrictions on foreclosures and evictions for federally backed mortgages.

To gain insight into the practices of the banks, the Committee for Better Banks, which includes progressive groups, labor unions and current and former bank employees, analyzed 191 Consumer Financial Protection Bureau complaints for Bank of America, BNP Paribas, Capital One, Citibank, Fifth Third Bank, HSBC North America, JPMorgan Chase, PNC Bank, Santander, TD Bank, Truist Bank, US Bank and Wells Fargo.

A spokesperson for JPMorgan Chase said the bank had “actively promoted the CARES Act relief program” across social media and email.

A spokesperson for Truist said the bank is working directly with borrowers to find solutions and ensure they can sustain homeownership during this “extraordinary, challenging time.”

The other banks in the report did not return requests for comment.

Several banks — including Wells Fargo, Bank of America and US Bank — failed to tell borrowers that if they deferred payments, they would not be able to refinance. HSBC and Wells Fargo placed customers in forbearance without their permission, a practice for which borrowers sued Wells Fargo in August, citing the impact on credit scores.

Eight of the banks required borrowers to make lump-sum payments at the end of the initial 90-day forbearance period instead of offering the option to extend the term of the loan. Just five banks — Fifth Third, Bank of America, Citi, Santander, and Wells Fargo — publicly informed customers of the federal moratorium on foreclosures.

In response to the coronavirus, the government allowed federally backed mortgages to be deferred up to a year, without penalties or late fees, and required lenders to allow borrowers to keep those payments the same after the forbearance period. Borrowers must request the relief, but lenders are responsible for informing their customers of the program.

Nearly one in six borrowers now has a mortgage in delinquency, and 1 million did not know about the relief programs. Two-thirds of those delinquent mortgages are federally backed and would be eligible for relief through forbearance or loan restructuring.

Now, with 29 million people claiming unemployment benefits, the number of delinquent mortgages could rise as federal relief programs lapse. Enhanced federal unemployment benefits, which paid $600 per week, expired at the end of July.

Indeed, investors predict that many homeowners — who have gained $10 trillion in home equity since the housing crash wiped much of it out — will become renters when they can no longer afford to keep their homes. Firms including Blackstone Group and Brookfield Asset Management have recently invested hundreds of millions in single-family rentals.


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