Mortgage Forbearance Update

Update 6/2/2020

More good news for homeowners with Freddie and Fannie Loans: Effective May 19, 2020, there will be special straight refi terms to finance out the forbearance amount. Still, you should only do a forbearance if you really need it, especially if you plan to sell and buy a new home in the next couple of years.

Lean your option through Consumer Finance.gov

Borrowers who have Fannie/Freddie loans and who have entered into a past forbearance plan (up to 12 months) will be able to refi their mortgage to take advantage of historically low rates.

Fannie Mae Loan Lookup Tool 

Freddie Mac Loan Lookup Tool

In more good news – borrowers who’ve come current on forbearance plans, may also purchase another home using Fannie/Freddie loans!

 The Bad News: Despite Fannie’s /Freddie’s willingness to lend to “forbearance borrowers”, each individual lender can make their OWN rules whether to grant a forbearance borrower a new loan!

FHA Gets on Board – 6-3-2020

HUD has announced that FHA is rolling out a new set of “tailored set of mortgage payment relief options” for FHA mortgage borrowers.

One of those payment relief options gives borrowers the ability to defer their mortgage payments for at least 6 months and as many as 12 months.

According to the FHA, the forbearance option applies to any borrower who has an FHA loan and is experiencing a coronavirus-related hardship.

The issue of forbearance is typically when the forbearance period ends, the borrower is required to either pay the full amount of missed payments in a lump sum or work with their loan servicer on some kind of payment plan.

In an effort to avoid any issues with the end of forbearance, the FHA is  rolling out a new program that will allow borrowers to hold off on paying the full amount of their forbearance period until their mortgage is paid off. 

“In addition to special COVID-19 forbearance, FHA also implemented the COVID-19 National Emergency Partial Claim, an option to be used by servicers when the COVID-19 forbearance period ends,” the FHA said.

The FHA said with this option, borrowers are given an interest-free 2nd mortgage that they don’t have to pay off until their 1st mortgage is paid off.

HUD is also instructing mortgage servicers to “extend any flexibility they have under the Fair Credit Reporting Act relative to negative credit reporting actions.”

Good news for homeowners struggling to make their mortgage payments!

In a past post, I talked about the possible struggles of getting a forbearance and having a large sum due or larger mortgage payment to repay your missed payments.

The news released on Monday is GREAT NEWS, but we still need to keep in mind that if you plan to refiance or get a new mortgage in the near future, the forbearance may prevent you from getting approved.

Read my article about why it’s a bad idea to get a forbearance

Fannie Mae and Freddie Mac stated “homeowner’s in forbearance plan DO NOT have to repay their deferred payments in a “lump sum” at the end of the forbearance agreement.

“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”.

Recent data shows that there are nearly 3.4 million borrowers already in forbearance as the virus shutdown continues to impact the economy.

But, there is a growing concern about what happens when the forbearance is over and how the missed payments are to be repaid by the borrower. 

Borrowers are confused about their options because of what their loan servicer told them.  Many have been told that the total lump sum is due.  But now, that is not the case, according to the two biggest sources of mortgage financing in the country.

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: A borrower whose mortgage is backed by either the government, (FHA) or GSEs (Fannie /Freddie) and who is experiencing a COVID “related” hardship can request AND MUST be granted forbearance of up to 180 days.

Find out if you mortgage is held by Fannie or Freddie

Fannie Mae Loan Lookup Tool

Freddie Mac Loan Look-Up Tool

But the Act does not 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, struggling because of Covid19 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.

“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.

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.”

GSEs offer several other options to repay your missed payments:

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 loan.

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 (Fannie /Freddie) themselves, but Calabria called on others in the mortgage business to adopt similar policies.

While this is great news, Calabria still has not announced any help or support for the non bank servicers. Which could lead to a Mortgage meltdown and the next housing crises

Calabria also noted that the FHFA recently partnered with the CFPB to ensure that borrowers are getting accurate info about their forbearance options and to “address concerns noted in some consumer complaints.”

(However) The CFPB’s “wording” seemingly implies that some borrowers have already complained that their servicers “may not be giving them accurate info about their options” ” said FHFA Director Mark Calabria.

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.

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