Many Americans continue to experience economic hardships as a result of the COVID-19 pandemic. According to an October 5, 2020, Mortgage Bankers Association (MBA) estimate, 3.4 million homeowners are on a forbearance plan and more than 70% of those loans have now been extended.
In my last HousingWire article, I addressed how we need to anticipate the next wave of homeowner education to get ahead of a looming question for many struggling homeowners: “What happens when my forbearance plan ends?” Maybe the answer is a repayment plan, or it could be payment deferral. It all depends on the homeowner’s unique circumstances.
But how do we get there? The answer is simple – communicate, consider and confirm. These three Cs can help as a servicer helps a homeowner following a forbearance plan. As part of our mission to our #HelpStartsHere campaign with real solutions during an evolving housing market, here are some critical questions that should be addressed to answer the above question that so many homeowners will be asking soon.
This may be the most important item on the list – clear, concise communication with the homeowner is key. Servicers must establish quality right party contact (QRPC) before initiating any type of post-forbearance option. Critical questions for effective communication:
What method of communication does the homeowner prefer (e.g., email, phone, text, self-service portal)?
- One size doesn’t fit all, therefore, understanding a homeowner’s communication preference will yield more success with QRPC outreach. Many homeowners may not understand that there must be an engagement with the servicer before extending a forbearance plan or entering a post-forbearance option. Also, borrowers who have the ability to do so may prefer a self-service method to seek specific information.
Is the homeowner educated about their options?
- Understanding the nuances of COVID-19 policies is a must. This can be especially challenging for homeowners dealing with financial hardships. Servicers can help educate homeowners about their options with resources like our Interactive Guide – Sustaining Homeownership in a Crisis.
There are many aspects of the homeowner’s unique situation to consider when determining the right post-forbearance approach. Critical questions to consider when assessing a homeowner’s financial status:
When does the forbearance plan end and is the homeowner’s hardship resolved?
- Answering this question is the starting point for determining if an extension of a forbearance plan is needed or if they enter a full vs. partial reinstatement, repayment plan or another post-forbearance option.
What is the status of their escrow account balance?
- Whether the servicer has already advanced missed escrow payments on the borrower’s behalf or there is a negative escrow balance and/or shortage if the escrow amounts have yet come due – the status could impact a borrower’s ability to resume paying, as well as the appropriate post-forbearance option.
- Working with our servicers during this pandemic we recognize that this very important consideration is often ignored or misunderstood. As a result, Freddie Mac has created training and information materials to remind servicers of the impacts of escrow on post-forbearance solutions.
- Get a closer look at escrow in this webinar recording.
Following a forbearance plan, it’s time to make some decisions based on the homeowner’s financial status. Confirm with the homeowner that they understand the long-term impacts of the post-forbearance option and ensure they are clear on what’s expected from them.
What is the long-term impact of a post-forbearance option?
There are some key differences between the home retention options:
- For example, a reinstatement allows the homeowner to catch up on all the missed payments in a single lump sum. Alternatively, a repayment plan would allow them to spread out the past due amount over a set timeframe.
- For a payment deferral, the deferred delinquent amounts create a non-interest-bearing forborne balance that will become due later (i.e., mortgage maturity date, payoff, refinance, etc.). Learn more about Payment Deferral.
- For a Freddie Mac Flex Modification, the unpaid balances from a forbearance period is added to an unpaid loan balance and the monthly mortgage payment is reduced by a combination, as applicable, of term extension, interest rate and principal forbearance. Learn more about the Flex Modification.
Help Starts Here
Make conversations about post-forbearance options easy. Freddie Mac has developed a detailed call script, as well as a servicer eBook to help have clear and concise communication with homeowners. Freddie Mac has partnered with HousingWire to educate the industry about forbearance and post-forbearance options, visit the web page for more information. #HelpStartsHere.