Recent data shows that there are nearly 3.5 million borrowers already in forbearance as the coronavirus shutdown continues to impact the economy.
And with that figure seemingly growing by tens of thousands of borrowers every day, the issue of what happens to those borrowers when their forbearance period ends is becoming a big problem.
Borrowers in forbearance will have to repay their missed mortgage payments one way or another, but there appears to be a growing number of borrowers who think they have to repay all their missed payments in one lump sum, either because they’re confused about their options or because that’s what their mortgage servicer told them.
But that’s not actually the case, according to the two biggest sources of mortgage financing in the country.
Fannie Mae and Freddie Mac each issued a statement Monday, reiterating that borrowers are not required to repay their missed payments all at once when their forbearance period ends.
The issue seems to stem from the lack of clarity in the CARES Act about what happens when a borrower’s forbearance period ends. 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.
But the act doesn’t dictate what’s supposed to happen afterwards.
That’s led to confusion among borrowers and servicers, with some servicers apparently telling borrowers that they’ll need to repay their missed payments in full when their forbearance period ends.
That is an option for repaying the missed payments, but not the only option, the GSEs said Monday.
“We want every homeowner who is struggling because of this pandemic to know they have mortgage options,” Fannie Mae CEO Hugh Frater said in a statement. “We do not require a homeowner to repay missed payments all at once at the end of the forbearance plan, unless they choose to do so.”
Those sentiments were echoed by Freddie Mac CEO David Brickman.
“Simply put, if you are a homeowner seeking forbearance and Freddie Mac owns your loan, you are never required to make up missed payments in a lump sum,” Brickman said.
“Our policies offer a number of options to bring borrowers current, including repayment plans, resuming normal payments or lowering your monthly payment through a modification,” Brickman added. “We encourage homeowners facing hardship to work with their servicer to identify the plan that’s appropriate for their unique situation.”
The GSEs issued these statements in order to “combat ongoing misinformation,” the Federal Housing Finance Agency said in an accompanying statement.
“During this national health emergency, no one should be worried about losing their home,” FHFA Director Mark Calabria said in a statement. “No lump sum is required at the end of a borrower’s forbearance plan for Enterprise-backed mortgages.”
As for what else borrowers can do instead of paying their missed payments back in full, the GSEs offer several other options, including:
- A repayment plan, which allows borrowers to catch up gradually in addition to paying regular monthly payments.
- Payment Deferral or modification of the loan, to keep monthly payments consistent and add the borrower’s missed payments to the end of the mortgage.
- Modification of the loan, to reduce a borrower’s original monthly payment amount.
According to the GSEs, servicers are required to reach out to borrowers in forbearance approximately 30 days before their initial forbearance period ends to discuss their repayment options.
As Calabria notes, the policies in place at the GSEs only apply to mortgages backed by the GSEs themselves, but Calabria called on others in the mortgage business to adopt similar policies.
“While today’s statement only covers Fannie Mae and Freddie Mac mortgages, I encourage all mortgage lenders to adopt a similar approach,” Calabria said.
Calabria also noted that the FHFA recently partnered with the Consumer Financial Protection Bureau to ensure that borrowers are getting accurate information about their forbearance options and to “address concerns noted in some consumer complaints.”
The wording seemingly implies that some borrowers have already complained that servicers may not be giving them accurate information about their options.
So, the GSEs’ announcement likely has two purposes: to remind borrowers of what their options are and to remind GSE servicers of what they’re required to do for their borrowers.