Congress Acts to Prevent Balloon Mortgage Payments by Homeowners
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What is the main topic discussed in this episode?
Here's your money briefing for Monday, May 4th. I'm J.R. Whelan for The Wall Street Journal.
What confusion in the CARES Act is creating balloon-payment risks for homeowners?
When Congress passed the CARES Act in March, homeowners who were hit financially by the coronavirus pandemic breathed a sigh of relief. Here's why. The act let them suspend mortgage payments for several months, but now many mortgage borrowers are finding that their lenders are requiring them to pay those missed payments all at once. And most households don't have the funds for that kind of balloon payment. Congress is now scrambling to fix unclear language in the law.
The uncertainty could affect consumer behavior. And what economists say should really be avoided is making large numbers of people responsible for paying more for housing than they otherwise would.
That's Wall Street Journal reporter Paul Kiernan.
How many homeowners have used mortgage forbearance and what immediate problem are they facing?
Coming up, he'll tell us how renters are impacted by this issue as well.
More than 3 million homeowners have taken advantage of a government offer to suspend mortgage payments amid the pandemic. But unclear wording in the CARES Act could force them to make those missed payments in one lump sum. Wall Street Journal reporter Paul Kiernan is with us to explain what Congress is doing to fix that. So, Paul, Congress is getting involved here to prevent balloon payments, but this was supposed to have been baked into the CARES Act in the first place, right?
Yes, so Congress and the CARES Act gave homeowners who face financial hardship the right to request and obtain up to a year of forbearance from their mortgage companies. The problem is the CARES Act doesn't say what happens after that six months or year or whatever the forbearance period is, is up. So you've got, as we reported, mortgage companies telling homeowners that they'll have to make balloon payments
Why does the CARES Act fail to specify what happens after forbearance ends?
in three or six months. Other options that are out there are repayment plans where instead of a $1,500 mortgage payment, you got to make a $2,000 mortgage payment for some period of time to make up what you had missed during the forbearance period granted by the coronavirus response.
So how does Congress intend to try to fix this?
some lawmakers are now proposing is to put it in the law. This is what happens after your forbearance period ends. You tack any missed payments on to the end of your mortgage and extend the mortgage term by the forbearance period. Whatever you're paying, whatever you were paying in February for your home, you're going to continue paying after the coronavirus pandemic is over. You're not going to have to pay more. You might have to negotiate paying less, and that'll be certainly on a case by case basis. But what a group of Democrats is doing in the House is trying to create a one size fits all solution to simplify it so that you don't have these questions and this uncertainty and frankly, confusion and miscommunication that's happening
because the instructions are getting passed down from the Federal Housing Finance Agency to Fannie Mae and Freddie Mac, countless mortgage servicing companies, each of which has a lot of employees who just understand what they're being told. And then homeowners ask them follow-up questions and they don't necessarily always know what to say. And so it would be a lot easier Democrats and a lot of economists say to just create a simple one size fits all solution to this. If you go into mortgage forbearance, the missed payments get tacked on to the end of your mortgage and you get extra time to pay off your mortgage. So if you have a six month forbearance period and a 30 year mortgage, you basically now got a 30 year and six month mortgage and you never have to pay extra at any given time.
How are lawmakers proposing to prevent lump-sum balloon payments after forbearance?
Is there any intention to try to fast track this fix? Because, you know, a lot of people around the country are really struggling.
I have spoken with a lot of people who are really freaked out about their mortgage payments. I think that what is going to happen is that they're going to be able to get forbearance. So they're going to be able to get probably in most cases at least three months of relief from having to make payments.
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:05–0:10
2
What confusion in the CARES Act is creating balloon-payment risks for homeowners?
0:10–0:54
3
How many homeowners have used mortgage forbearance and what immediate problem are they facing?
0:54–2:03
4
Why does the CARES Act fail to specify what happens after forbearance ends?
2:03–3:59
5
How are lawmakers proposing to prevent lump-sum balloon payments after forbearance?
3:59–5:43
6
Could Congress fast-track a fix and when might the repayment problem peak?
5:43–8:39
7
What would rent and mortgage cancellation legislation propose and who supports it?
8:39–8:48
Speakers
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