The Federal Trade Commission recently published guidance to mortgage borrowers regarding relief that may be available to them because of the COVID-19 emergency.

The FTC addresses the foreclosure moratorium and forbearance relief provided for in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) for federally-backed mortgage loans. The FTC explains the types of loans that are federally-backed loans, and provides instructions on how a borrower can determine if their loan is owned by Fannie Mae or Freddie Mac.

The FTC recommends that mortgage borrowers contact their servicers regardless of the loan type they have, noting that even if they don’t have a loan eligible for a CARES Act forbearance they may be eligible for other relief. The FTC advises that a forbearance is not loan forgiveness, and recommends that borrowers ask their servicers what happens when the forbearance ends (and the FTC provides a link to a Consumer Financial Protection Bureau video on the subject). Mortgage servicers take note, the FTC states that “[y]our servicer should be able to tell you if it will extend the loan term so you can make the missed payments later, if your monthly payments will go up to make up the difference, if you will owe the entire unpaid amount in a lump sum, and how [forbearance] could affect your credit.” Mortgage servicers likely are waiting to see how long forbearance periods may run before determining the specific methods that borrowers will have to make the missed payments, and the potential for legislation in this area must be considered. The U.S. Department of Veterans Affairs has expressly stated that a servicer may not require the borrower to repay the total amount of the forborne payments in a lump sum, except if the amount would be payable at the end of the loan.

The FTC also advises mortgage borrowers how to get in contact with a counselor approved by the U.S. Department of Housing and Urban Development, and that the borrower’s state may offer relief, such as a moratorium on foreclosures.

The FTC ends the guidance by cautioning mortgage borrowers about scammers who may be trying to take advantage of borrowers who are facing financial difficulty, and advising borrowers not to pay in advance for a party to help them with their mortgage. The FTC notes the federal law prohibition against firms receiving a payment for assisting a borrower with their loan until the borrower has accepted a written offer for a loan modification or other relief from their lender or servicer.

The FTC guidance may be helpful to mortgage servicers in developing communications with borrowers.

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