With nearly 4 million borrowers in mortgage forbearance, we still don’t have a complete picture of what happens when forbearance periods end. Borrowers got some clarity on the situation last month, when Fannie Mae and Freddie Mac said that borrowers are not required to repay all their missed payments at once.
And as it turns out, borrowers in forbearance may not have to repay their missed payments at all until the end of their loan thanks to a new repayment option from the GSEs.
Fannie Mae and Freddie Mac announced Wednesday that they are rolling out a new payment deferral option for borrowers in forbearance.
Under the new program, borrowers who took forbearance due to a coronavirus-related issue will not have to repay their missed payments until the borrower sells their house, refinances their current mortgage, or their mortgage matures.
According to the GSEs and the Federal Housing Finance Agency, the deferral option is available to borrowers in forbearance who regain the ability to pay their mortgage on time. Under the program, the borrower simply starts making their mortgage payments again when they’re able and any missed payments are deferred to the end of their loan.
“For homeowners in forbearance due to COVID-19, payment deferral allows them to make up missed forbearance payments when they sell their home or refinance,” FHFA Director Mark Calabria said. “This new forbearance repayment solution responsibly simplifies options for homeowners while providing an additional tool for mortgage servicers. Borrowers who can pay their mortgage should, because missed payments remain an obligation that will ultimately have to be repaid.”
The CARES Act stipulates that a borrower whose mortgage is backed by either the government or the GSEs who is experiencing a COVID-19-related hardship can request and must be granted forbearance of up to 180 days, which then may be extended for another 180 days.
The issue is that forbearance is not forgiveness, therefore borrowers in forbearance have to repay their missed mortgage payments one way or another.
The GSEs’ new payment deferral allows borrowers who took forbearance to shift as many as 12 months of mortgage payments to the end of their loan.
“This option is for homeowners who have completed a COVID-19 related forbearance plan and are able to continue making their full monthly contractual payment but cannot afford full reinstatement or a repayment plan to bring their mortgage loan current,” Fannie Mae said in a release.
According to Freddie Mac, the “COVID-19 Payment Deferral solution” reinstates a homeowner’s monthly mortgage payment to its pre-forbearance amount by adding up to 12 months of missed payments, including escrow advances, to the end of the mortgage term without accruing any additional interest or late fees.
“This will help borrowers keep their mortgage payment current following their hardship when other options—such as reinstatement, or a repayment plan—are not viable,” Freddie Mac said.
If a borrower chooses this new option, the principal, interest and any other expenses advanced by the mortgage servicer are deferred into a non-interest-bearing forborne balance that will become due at the end the loan.
According to Freddie Mac, the maturity date, remaining term, interest rate and payment schedule of the borrower’s mortgage remains the same as it was before.
Freddie Mac also said that utilizing the payment deferral option does not prevent a homeowner from “ultimately being eligible for a Freddie Mac modification if payment relief is needed in the future.”
According to the GSEs and FHFA, servicers are to begin offering this option to borrowers on July 1, 2020.
“Our main focus continues to be finding new and innovative ways to help borrowers and their families during this pandemic,” said Donna Corley, executive vice president and head of Freddie Mac’s Single-Family business. “Our payment deferral solution adds another tool to our toolbox to help homeowners pick up where they left off once they’ve recovered from a short-term financial hardship.”
The FHFA also reminded borrowers in forbearance that they can still use other repayment options, including reinstatement, repayment plan, or loan modifications based on their individual situations.
The Mortgage Bankers Association welcomed the GSEs’ announcement.
“MBA applauds Director Calabria and the FHFA for working with the GSEs to offer another repayment option that will ease the burden for homeowners who are affected by the COVID-19 pandemic,” MBA President and CEO Bob Broeksmit said.
“The payment deferral option gives mortgage servicers a practical tool to help homeowners through this unprecedented time. A primary benefit of this option is that a homeowner’s mortgage payment will not change once the forbearance period ends,” Broeksmit added.
“MBA has advocated strongly for additional options to assist homeowners, and we appreciate FHFA taking the industry’s feedback in making payment deferrals available,” Broeksmit concluded. “We appreciate the efficiency this process will bring as it benefits borrowers, mortgage servicers, investors, and the GSEs.”