A recent report from Goldman Sachs suggested that a record-shattering number of people are filing for unemployment as the coronavirus cripples the nation’s economy. That’s why there’s likely going to be a giant surge in delinquent mortgages as many borrowers are unable to make their next mortgage payment.
That’s also why the mortgage industry is asking the government to allow mortgage servicers to be able to provide affected borrowers with a 90-day break on their payments.
While that solution would require some serious legwork (more on that here), the two biggest sources of mortgage financing are giving some leeway to borrowers who’ve fallen behind. Fannie Mae and Freddie Mac unveiled today a new “payment deferral” option that will allow borrowers facing a hardship to defer two months of their mortgage payments until the end of their mortgage.
The program was set to be announced later this year, but with the coronavirus wreaking havoc on the country, the GSEs are rolling out the program early to give mortgage servicers another way to help borrowers now.
The payment deferral option isn’t only available for borrowers facing a coronavirus-related hardship. To be eligible for the payment deferral program, borrowers must have faced a short-term hardship that caused them to miss one to two months of mortgage payments.
If the borrower is able to resolve the hardship within that time period and has the financial ability to restart their mortgage payments in full, the borrower will be eligible to defer those two months of payments to the end of their mortgage without needing to significantly modify the loan.
“This innovative relief solution addresses a unique hardship situation – homeowners who have resolved a short-term hardship,” Freddie Mac said in its announcement. “It aims to serve those homeowners with a more affordable workout that’s between a repayment plan and a modification. This is a broad offering that is aligned with Fannie Mae at the direction of the Federal Housing Finance Agency to assist more struggling homeowners.”
Here, from Freddie Mac, is more detail on how the program works:
At Freddie Mac, we recognize that some Borrowers experience temporary financial hardships resulting in an early stage Delinquency that cannot be solved by a reinstatement or repayment plan, but also do not require the more extensive modification of terms that a Freddie Mac Flex Modification would provide. The Payment Deferral is designed to provide relief to eligible Borrowers who have the financial capacity to resume making their monthly payments, but who are unable to afford the additional monthly contributions required by a repayment plan. An eligible Borrower will be brought current by deferring delinquent principal and interest (P&I), creating a non-interest bearing forborne balance that will become due at the earlier of the Mortgage maturity date, payoff date, or upon transfer or sale of the Mortgaged Premises. The remaining Mortgage term, interest rate schedule (i.e., whether a fixed-rate Mortgage, an ARM or Step-Rate Mortgage), payment schedule and maturity date of the Mortgage will all remain unchanged.
To put it in simpler terms, the GSEs will allow certain borrowers to defer two months of their mortgage payments until their mortgage ends or they sell their house.
According to the GSEs, mortgage servicers must begin borrower evaluations for the payment deferral program no later than Jan. 1, 2021, but servicers may begin using this new option with eligible borrowers as early as July 1, 2020.