Charlotte Kesl for The Wall Street Journal
Hurricane Irma barreled through Gainesville, Fla., in 2017, displacing some of the clients Faye Feazell worked with as a home health aide. Ms. Feazell, unsure how she would make her monthly mortgage payments, called her mortgage company for help.
She said the company, AmeriHome Mortgage Co., told her not to worry: She could skip payments for 90 days. But three months later, when she called to find out about resuming payments, she learned she was being foreclosed on, she said. The AmeriHome employee she spoke to didn’t know anything about the relief plan Ms. Feazell said she was offered.
“It was heartbreaking,” Ms. Feazell said. “Because I have never been behind on anything in my life.”
Mortgage companies often offer help to borrowers after natural disasters, but the programs can end up hurting them.
The scope of the problem is difficult to quantify. Hundreds of homeowners have complained to the Consumer Financial Protection Bureau about problems with so-called mortgage forbearance programs. Consumer lawyers in regions hit hard by natural disasters say they have seen more homeowners who are reported delinquent to credit-reporting firms after accepting payment help.
“We’re just one law firm in one disaster in one part of Florida and we saw this come up a number of times,” said Mike Ziegler, a consumer lawyer in Clearwater.
How such programs operate, and their potential pitfalls, could become even more important in light of the coronavirus epidemic. If the disease spreads throughout the U.S. and puts some Americans out of work, lenders would likely grapple with how and whether to offer assistance to borrowers.
The problems with assistance programs often start with administrative errors that lead to bigger issues down the road.
After storms, wildfires and other natural disasters, companies sometimes offer help over the phone but don’t record that they did so, according to interviews with consumer lawyers and homeowners. The companies might not make it clear when or if borrowers have to make up the payments.
A company that tells borrowers they can miss payments might report them as delinquent to credit-reporting firms when they do so. That in turn can send their credit scores tumbling and make it more difficult for them to buy a car, rent an apartment or tackle other tasks after a storm. People with lower credit scores before a natural disaster are more seriously affected by knocks to their credit afterward, reinforcing their disadvantage, the Urban Institute found.
Servicers say they do their best to help borrowers and have made efforts to improve their disaster responses.
Credit-reporting firms Experian PLC, Equifax Inc. and TransUnion didn’t comment.
While such programs help many borrowers, reports of problems highlight the need for consumer vigilance. A trade group that represents the credit-reporting companies says consumers who skip payments after a disaster with their mortgage company’s permission should check their credit reports to make sure they haven’t incorrectly been reported as delinquent.
Consumer lawyers say borrowers should accept payment relief only if they have no other means to pay their mortgage and should call their servicers regularly until a final repayment plan is ironed out.
Charlotte Kesl for The Wall Street Journal
A law firm helped Ms. Feazell, 67, keep her home. But she still has to pay more than $7,000 for the attorney AmeriHome hired to process the planned foreclosure. She wishes she had never called the company for help.
AmeriHome declined to comment.
Susan Tellem’s home burned down when the Woolsey Fire tore through her Malibu, Calif., neighborhood in November 2018. Her mortgage servicer, Select Portfolio Servicing Inc., agreed to let her skip payments for four months as she figured out how much her insurance would pay to rebuild, she said.
Less than two months later, she got a letter from the company saying she was in default for missing a payment. Ms. Tellem, a senior partner at a public-relations firm, told the company she no longer wanted the relief and started paying the mortgage again, she said.
But her servicer reported her as delinquent, according to a copy of her credit report. Ms. Tellem’s credit score soon plunged. The company eventually sent correct information to the credit bureaus, she said, but her interactions were frustrating.
“It’s like a revolving door,” Ms. Tellem said. “You never talk to the same person.”
Select Portfolio Servicing didn’t respond to requests for comment.
For loans backed by Fannie Mae or Freddie Mac, mortgage servicers are required to give borrowers the option to skip payments for up to 12 months when a natural disaster hits, though the policy kicks in only under certain conditions. For example, the area has to be declared a major disaster by the president. The Woolsey Fire fell into that category, as did Hurricane Dorian in North Carolina and severe flooding in Nebraska and Iowa last year.
Under the same rules, servicers aren’t supposed to report borrowers as delinquent to credit bureaus while they are on disaster-relief plans. They are supposed to regularly check in with homeowners and set up a plan to transition back to payment.
A similar policy applies to Federal Housing Administration mortgages.
Some borrowers said their servicer told them they could skip several months of payments and tack them on to the end of the loan—but then were told a few months later they had to repay the money right away.
Cheryl and Garrett Bowles said that is what happened to them with Mr. Cooper Group Inc., formerly known as Nationstar Mortgage, after Hurricane Irma downed several trees on their property in Citra, Fla.
The Bowleses couldn’t afford to catch up with a lump-sum payment, so a Mr. Cooper employee offered what they hoped was a way out. Mrs. Bowles said she was told she could file paperwork requesting that the skipped payments be added to the end of the loan.
She said that she applied right away but a Mr. Cooper agent later told her the company had lost the documents and she had to reapply.
A spokesman for Mr. Cooper said Wednesday the company did offer the Bowles family a loan modification but wouldn’t specify terms or when it was offered.
Mrs. Bowles applied again. Mr. Cooper told her in a December letter it couldn’t modify her loan because her family had “insufficient disposable income.”
The family moved out of their 1982 Catalina double-wide mobile home in January. Mrs. Bowles found a buyer and expects the sale to cover the $40,000 still owed to Mr. Cooper. For now, they have moved in with Mrs. Bowles’s sister.
Mr. Cooper settled with Florida’s attorney general in 2018 over accusations that it misled borrowers after Hurricane Irma. The company didn’t admit wrongdoing, but its chief executive said in a press release its communication with some customers “was less than perfect.”
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