They were struggling with the mortgage before the pandemic began and tried to modify the loan, which has a fixed rate of nearly 4.9%, but their mortgage servicer, Select Portfolio Servicing, demanded a lump-sum payment that they couldn’t afford, Moroni says. Knapp, an occupational therapist for a home-health company, lost much of his income as clients canceled appointments when the COVID-19 crisis began. Instead of offering pandemic-related relief, however, SPS moved to foreclose on the couple, Knapp and Moroni say. In recent months, the homeowners say they have been in mediation with SPS, trying to negotiate an affordable repayment plan.

The idea of losing the house is unthinkable, Moroni says. “We have nowhere to go.”

SPS, a subsidiary of Credit Suisse, didn’t respond to requests for comment.

Moroni and Knapp’s loan is one of the roughly 14.5 million single-family mortgages — about 30% of the total outstanding — that are privately owned and have no federal backing. While homeowners with mortgages backed by the federally chartered Fannie Mae or Freddie Mac or by the federal government can qualify for up to 18 months of pandemic-related forbearance and are shielded by a foreclosure moratorium that extends through the end of June, among other protections, there’s no nationwide relief for loans that are not federally backed.

The result: Non–federally backed borrowers are sometimes offered only short-term payment suspensions and relatively unaffordable repayment plans, and, in the worst cases, they’ve received no relief and lost their homes midpandemic. Their fate often depends on the identity of the loan holder. Many of these loans are held in bank portfolios, where the bank has considerable discretion to offer the type of relief it sees fit, while others are owned by smaller investors or packaged into private-label securities, where the deal documents can govern what types of relief servicers can offer to borrowers.

That leaves borrowers exposed as the pandemic punches holes in the nation’s housing security. As of January, serious mortgage delinquencies were at five times their pre-pandemic levels, according to mortgage data provider Black Knight.

Servicers say they’re doing their part to help borrowers. “Our No. 1 goal is to keep people in their homes,” says Carmen Bell, head of the default servicing group at Wells Fargo. She says the bank has “taken the same approach” to mortgages that are not federally backed as to those that are, except when private investors place limits on the relief.

Ideally, “relief should be based on the needs of the borrower and not who owns the loan,” says Eric Kaplan, senior adviser at the Milken Institute Center for Financial Markets, “but you can’t ignore the rules in place” and potential investor objections. Consumer advocates are calling on lawmakers to expand homeowners’ rights to forbearance and other payment relief. Congress should require private loans to adopt a foreclosure moratorium, forbearance plans and post-forbearance payment options similar to those available to federally backed borrowers and give servicers who follow such provisions safe harbor from investor lawsuits, Nikitra Bailey, executive vice president of the Center for Responsible Lending, said in March 16 prepared testimony before the Senate Banking Committee.

Those protections could have made all the difference for Jacarae Fairbanks, 44, a single mother of three in Puyallup, Wash., whose home was sold in a foreclosure last fall. She’d fallen behind on her non–federally backed mortgage before the pandemic began and was facing foreclosure in 2019 before securing a loan modification that required 12 months of trial payments. The modification agreement included some strict terms: If Fairbanks failed to make a monthly payment or was more than 30 days past due, she agreed to foreclosure, according to a copy of the agreement included in court filings.

Fairbanks made five payments under the new agreement but fell behind again in early 2020, according to court filings. After the pandemic struck, she lost her job as an accounting assistant and contacted her mortgage servicer, FCI Lender Services, to ask for relief, according to Fairbanks and her lawyer, David Smith. But the investor that owned the mortgage wouldn’t allow a forbearance, according to Fairbanks, Smith and Shelley Doran, a housing counselor with Shoreline, Wash.–based nonprofit Parkview Services, which began working with Fairbanks in November.

“The investors direct FCI what to do and what not to do,” says Michael Griffith, FCI’s president and CEO. “FCI has no authority whatsoever to mandate forbearances, modifications, etc.”

The investor in Fairbanks’s loan was Residential Credit Opportunities Trust V-C, a fund managed by American Mortgage Investment Partners Management of Seal Beach, Calif. Ron McMahan, AMIP’s CEO, said the firm “did provide her with assistance” but declined to give details, saying he was unable to comment on a specific borrower. “There is not one borrower who we dealt with in the past seven or eight months that we outright denied access to a forbearance plan,” he said.

The foreclosure “is not final,” McMahan says. “It’s subject to ongoing litigation.”

Court filings show that the lender restarted the foreclosure process in late April of 2020. A November 2020 filing by Residential Credit Opportunities’ trustee states that the firm proceeded with foreclosure after Fairbanks failed to make February, March and April 2020 payments.

With her children’s schools closed, Fairbanks says, it was impossible to return to work. In desperation, she turned to third parties for help, including Home Matters USA, a Los Angeles–based firm that Fairbanks says charged her thousands of dollars and told her it was handling the situation but ultimately did nothing to help her. Home Matters did not respond to requests for comment.

Knowing that a foreclosure was pending, Fairbanks contacted a real-estate agent to sell her house, which would likely allow her to walk away with upwards of $100,000 in equity, she says. But Home Matters kept assuring her that she wouldn’t lose her house, she says, and in a hot housing market in the Seattle-Tacoma area, she knew that she needed to line up a new place to live before putting her home on the market. Before she could act, her home was sold in a foreclosure auction last October.

“The bottom line is she defaulted on the modification,” FCI’s Griffith says. “The lender decided not to work with her anymore and took her house.”

For now, Fairbanks and her family remain in the house while she fights in court to salvage her home, arguing that a bankruptcy filing she made in the days after the foreclosure auction should have halted the transfer of the title to the new owner pending a court review. A judge in U.S. Bankruptcy Court for the Western District of Washington ruled in Fairbanks’s favor in January. An appeal is pending.

“I was just trying to have the American dream, like anybody else,” Fairbanks says. “I did it by myself, just to show my kids a better life. And who would have ever known we’d be dealing with COVID-19?” She has no family with whom she can move in, she says, and “I don’t have anybody I can call and say, ‘Can me and my kids come stay with you?’ How can I look at my kids and say, ‘We’ve got to move out’?”

Many distressed homeowners with mortgages that are not federally backed have received pandemic-related forbearance, but in some cases it’s brief — three months, for example — housing counselors and homeowners say. About 5% of non–federally backed loans were in forbearance as of late February, according to Black Knight, consistent with the share of all mortgages that have been afforded such relief.

For homeowners who want to extend their forbearance periods, some servicers are requiring new documentation every month, which “creates an enormous amount of uncertainty and extra burden that really isn’t necessary,” says Lisa Sitkin, senior staff attorney at the National Housing Law Project.

The real trouble often starts when forbearance ends. Some servicers ask borrowers to repay the forborne amount in a lump sum or set up a monthly repayment plan that a homeowner can’t afford, while others offer borrower-friendlier options, such as deferring the forborne amount to the end of the loan term. Homeowners with Fannie Mae, Freddie Mac and government-backed loans aren’t required to make a lump-sum repayment when exiting a COVID forbearance, and they often have access to streamlined options that let them resume their prior payment schedules while deferring the skipped payments to the end of a loan term.

A sizable share of homeowners has recently exited forbearance with past-due payments and no loss-mitigation plan in place. In some cases that’s because servicers are having trouble contacting the borrowers or because it takes time to process modifications, says Mike Fratantoni, the Mortgage Bankers Association’s senior vice president and chief economist. In the week ending March 14, about 22% of non–federally backed borrowers and 20% of total borrowers who left forbearance were not current on their loans and had no repayment plan or loan modification in place, according to the association.

Some homeowners’ relief options are limited because their mortgages are part of the private-label securities market, which blew up during the last financial crisis but had started to make a comeback pre-pandemic. Documents that govern the servicing of loans in these securities are sometimes vague, leaving relief options open to a servicer’s interpretation, while in other cases they give servicers “perverse incentives,” Kaplan says, such as paying them higher fees for servicing loans that are in distress, or tie the hands of servicers that would otherwise offer more generous forbearance options.

Ocwen Financial Corp. says it aims to treat all borrowers equally, regardless of who owns the loan. “The only exception would be [when] a particular investor tells us not to do that,” says Scott Anderson, executive vice president and chief servicing officer. “That can happen — it’s their loan.” In the majority of cases, he says, such restrictions don’t come up.

Wells Fargo says it, too, tries to extend the same options to all borrowers, but in some cases private investors have limited forbearance to six months, Bell says, and, in rare instances, as little as two months. As hard-hit homeowners attempt to extend a period of paused payments, “there are likely more customers in the private space who won’t be eligible to continue the forbearance,” she says, although they may be eligible for loan modification or other alternatives. Some investors have capped the number of months of forborne payments that can be deferred to the end of the loan, she says.

In some cases, servicers can challenge such restrictions, consumer advocates say. Under the federal government’s Home Affordable Modification Program, or HAMP, established in 2009 in response to the foreclosure crisis, participating servicers were required to ask investors to waive restrictions that were blocking loan modifications. Although Wells Fargo does engage with private investors, “it’s relatively rare that they’d give us the authority to not follow their documented guidelines and their contracts,” Bell says.

For loans in private-label securities, it’s not always clear who has the authority to decide on the terms of any relief offered borrowers: It could be an investor, trustee, bond administrator or other party. “The stakeholders for that deal have to come together and figure out what type of loss mitigation and terms they’re going to offer,” says Karan Kaul, senior research associate at the Urban Institute’s Housing Finance Policy Center. What’s more, “mistakes are often made” in interpreting the pooling and servicing agreements, the National Housing Law Project’s Sitkin says, adding that she had many cases during the foreclosure crisis in which servicers said they were bound by investor restrictions on modifications that were not borne out by the documents themselves.

The Consumer Financial Protection Bureau wants to closely track post-forbearance repayment options that are offered borrowers whose mortgages are not federally backed, a bureau spokesperson says, and is working with other federal agencies on guidance for post-forbearance options and foreclosure referral. The bureau says that its goal is to ensure that no one is referred for foreclosure without being evaluated for all other alternatives.

The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, has said that it’s moving to preserve protections for borrowers whose loans are sold by the two mortgage giants. Democratic Sens. Sherrod Brown and Jack Reed of Ohio and Rhode Island, respectively, raised alarms in recent months about nonperforming and reperforming loans sold by Fannie Mae and Freddie Mac during the pandemic, saying the sales could cost borrowers federal forbearance protections and exclude them from Fannie and Freddie foreclosure moratoriums. (Reperforming loans have been delinquent but are now current.)

In a late February letter to Brown and Reed, FHFA director Mark Calabria said that about 42,000 of the roughly 95,000 loans sold were resecuritized into Fannie- or Freddie-backed securities and would retain CARES Act protections, while the remainder were sold in deals that require purchasers and servicers to honor any existing forbearance plans in place at the time of sale and to prioritize foreclosure alternatives. FHFA has directed Fannie and Freddie to require that loans sold in the future maintain COVID-related foreclosure and forbearance protections, Calabria wrote.

It’s “infuriating” that all borrowers haven’t been given the same protections during the pandemic, says Benjamin Jancewicz, 37, a Baltimore homeowner.

After a 2019 motorcycle accident kept him out of work for six months, Jancewicz says, he was in bankruptcy when the pandemic struck and wiped out 75% of his income as a graphic artist. When he emerged from bankruptcy, he asked his mortgage servicer, Shellpoint Mortgage Servicing, for pandemic-related relief, but he was just asked to fill out the same forms repeatedly with no result, he says. “I started just packing a box every week or so,” thinking that he would lose his home, says Jancewicz, a single parent with two middle-school-aged children.

In recent weeks, he finally got paperwork for a loan modification that makes his monthly payments affordable but requires a large balloon payment at the end of the loan term. “I think it’s the only option I have now,” Jancewicz says. Shellpoint, a unit of New Residential Investment Corp., did not respond to requests for comment.