If there is one thing homeowners, consumers, and small business owners need from the federal government, their banks and mortgage servicers as they attempt to make sound financial decisions in the midst of the coronavirus crisis is reliable information.
Of course, that’s exactly what they’re not getting.
So in this ninth edition of DannLaw’s Covid-19 updates I’ll try once again to fill the knowledge gap and clear the confusion surrounding the multiple aid packages that have been enacted by Congress and the Trump Administration. Don’t be surprised if I revisit some topics we’ve addressed in the past because, and I’m sure this won’t come as a shock, many of the problems that have made it difficult for Americans to access the help they deserve and desperately need still haven’t been fixed.
Let’s start with what is quickly becoming a textbook example of a good idea gone bad: the Paycheck Protection Program (PPP). If you had the time and/or the inclination you could spend days watching and reading media stories detailing the botched rollout of the PPP. As we noted in an earlier update, the bankers responsible for accepting and submitting loan applications to the SBA favored existing clients over non-clients and bigger borrowers over small ones because bigger loans generate—wait for it—bigger fees for the banks.
This left many smaller and/or minority owned businesses standing on the sidelines as bigger companies quickly sucked up the $350 billion in available aid. Among those doing the sucking were well-capitalized firms and entities including Ruth’s Chris Steakhouse, Harvard University, the Los Angeles Lakers, Shake Shack, and Nathan’s Famous Hot Dogs.
A reasonable person might believe that the feds would address the problems afflicting the program before beginning to hand out the additional $350 billion in PPP funding appropriated by Congress at the end of April.
A reasonable person would be wrong.
Today, the government is still unable to provide definitive, reliable information that will enable business owners to determine if they should even bother applying for assistance. We still don’t know who is entitled to participate in the program, what the terms of promised forgiveness will be when the time comes to pay the money back, or if all borrowers regardless of size will be treated fairly.
As if all that weren’t confusing enough, the IRS just threw a new stick in the works by ruling that small business owners whose loans are forgiven can’t take tax deductions for associated wages and other expenses.
The Wall Street Journal notes that without the deductions, the program will help companies survive but it becomes a wash from a tax perspective, limiting its potential value. Employers will get tax-free income if their loans are forgiven but lose the associated deductions.
Senator Chuck Grassley, one of the authors of the PPP program said he was disappointed by the IRS ruling. “The intent was to maximize small businesses’ ability to maintain liquidity, retain their employees and recover from this health crisis as quickly as possible. This notice is contrary to that intent,” he said.
But the IRS doesn’t give a damn about Congress’ intent. That means the House and Senate must vote to overturn the IRS directive. I’m not holding my breath.
What I am doing is talking to lots of frustrated and bewildered business owners who kept employees on their payroll because they believed the PPP would compensate them for doing so. Now it appears many of them may be left on the hook for the costs—costs they could ill afford and would not have incurred if they hadn’t been enticed by what appear to be empty promises.
We’re continuing to investigate claims and search for ways to hold the banks that played favorites during the application process accountable for their actions. If you have faced any of the issues I’ve described or believe you have been discriminated against, please feel free to share your experience with me by emailing firstname.lastname@example.org.
Unfortunately, things are also clear as mud for homeowners searching for information about programs that may help them save their homes as the Covid-caused recession deepens. A reasonable person would begin such a search by visiting their mortgage company’s website.
Like the reasonable person who thought the government would fix the PPP, this reasonable person would be dead wrong.
How do I know?
Because the Office of the Inspector General of the United States Department of Housing and Urban Development said so in a recent report:
“Our review of the 30 servicers’ websites, which service approximately 90 percent of FHA loans, revealed that those websites provided incomplete, inconsistent, dated, and unclear guidance to borrowers related to their forbearance options under the CARES Act.” Wells Fargo, Nationstar, PHH/Ocwen, Rushmore, Fay Bayview, M&T, and Lakeview were among the companies singled out for criticism in the report which you can read here.
This lack of clarity is especially aggravating because the FHA is offering real help for borrowers. Anyone with an FHA loan is entitled to a 60-day suspension of payments, followed by another 120 days of forbearance that can then be extended for 180 days. At the end of the forbearance period the actual amount of payments owed will be added to the back of loans at zero interest in what is called a “partial claim” silent second mortgage. Hopefully, scrutiny from the FHA will motivate servicers to make accurate information about forbearance more accessible to the millions of people who need it.
People who have non-FHA-insured mortgages are having an even more difficult time obtaining accurate information about their loans. That’s why we have prepared a simple Request For Information (ROI) letter you can send to your mortgage lender that will help you determine who owns and insures your loan and what relief programs your lender/servicer may be offering.
You can download the letter from our website here. Address it to the RFI/NOE QWR Address and if you can, send it by certified mail so you can prove later that the servicer received it. If you want our help in reviewing the information you receive (or preparing the initial letter) please schedule a no-cost video or phone conference by emailing email@example.com.
Once you know all you need to know about your loan, here are important factors you should take into consideration before seeking relief:
- Forbearance is not Forgiveness. As a recent article in the Wall Street Journal makes clear, you will eventually have to pay the amount you owe—and lenders can demand that you pay it all at once at the end of the forbearance period.
- Make your mortgage payment if you can afford to do so.
- Understand how much your house is worth. If you have equity in your home, you should protect it.
- Always communicate with lenders/servicers in writing so you will be able to prove what the lender promised you and what you promised them.
- If you believe you are in over your head or are feeling pressured by a lender or servicer, please contact us or another lawyer. We are here to answer your questions and offer advice that could save your home and secure your financial future.
To add insult to injury, I’m compelled to note that the Trump Administration is using the pandemic to pervert and subvert the mission of the Consumer Financial Protection Bureau (CFPB). The New York Times just reported that leaders manipulated the Bureau’s research process so they could justify creating a new rule favorable to the predatory payday lending industry. This revelation was closely followed by news that the CFPB was using the pandemic as an excuse to roll back protections for home buyers. The leaders of the National Association of Consumer Attorneys, including DannLaw’s Brian Flick, called out the CFPB in this letter . Here is part of what they said:
“Debt collectors, notorious for their aggressive and abusive conduct, should be closely monitored (and credit) bureaus and furnishers should be made to comply with the Fair Credit Reporting Act at all times. Lenders should be strongly discouraged from making costly, high-interest loans (and the) CFPB should work with all mortgage and student loan servicers to employ practices that would help borrowers stay in their homes or avoid default.”
Finally, I want to assure everyone that DannLaw’s attorneys and paralegals have been and will continue to be available to you during the crisis. We are prepared to use every tool in our arsenal to protect homeowners, consumers and small businesses from abuse by mortgage lenders, creditors and other predators.
If you’ve lost your job, suffered a reduction in income or need guidance about how to keep a roof over your family’s head we acall or email away.
Thanks for reading the update. Be well, stay safe, and remember, we’re all in this together.