New bulletins from Fannie Mae and Freddie Mac have detailed a new option for the repayment of mortgages forborne because of the pandemic, announcing a payment deferral program specific to borrowers impacted by COVID-19.
Under the new plan, borrowers whose forbearance plans are directly coronavirus-related have an option to defer their missed payments until the end of their loans. Borrowers will be able to defer up to 12 months of mortgage payments in this fashion until their loan matures, they refinance or they sell the property covered by the loan. Opting for the “COVID-19 Payment Deferral,” as the new program is called, will bring the homeowner current on their mortgage.
Meanwhile, the borrower’s missed principal and interest payments (along with any other allowable costs advanced by their servicers during the forbearance period) will be moved into a non-interest-bearing balance that comes due if one of the aforementioned conditions is met. As with forbearance plans in general, borrowers will not be required to repay that balance all at once; the mortgage servicer must work with the homeowner to determine how they will repay missed payments.
Servicers will begin offering the payment deferrals beginning July 1.
“This new forbearance repayment solution responsibly simplifies options for homeowners while providing an additional tool for mortgage servicers,” said Mark Calabria, director of the Federal Housing Finance Agency (FHFA). “Borrowers who can pay their mortgage should, because missed payments remain an obligation that will ultimately have to be repaid.”
The program is based in part on a payment deferral program that the government-sponsored enterprises (GSEs) jointly rolled out in March under the direction of the FHFA. That program was created to assist borrowers whose loans fell delinquent due to a short-term hardship that has since been resolved; this new offering adapts the framework of that program to borrowers whose hardships are explicitly coronavirus-related.
“Our main focus continues to be finding new and innovative ways to help borrowers and their families during this pandemic,” said Donna Corley, Freddie Mac executive vice president and head of the GSE’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.”
In order to be eligible, mortgages must have been current or less than 31 days delinquent as of March 1 — the effective date of the national emergency declaration due to COVID-19.
The Coronavirus Aid, Relief and Economic Security (CARES) Act offers borrowers experiencing COVID-related hardship an initial forbearance option of up to 180 days, with the right to request an extension for up to another 180 days. Servicers will reach out to homeowners about 30 days before their initial forbearance plans are scheduled to end to determine if the COVID-19 Payment Deferral or another repayment program is best, or if more forbearance is needed.
The new deferral program met rapid praise from Mortgage Bankers Association (MBA) President and CEO Robert Broeksmit.
“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,” he said. “The payment deferral option gives mortgage servicers a practical tool to help homeowners through this unprecedented time.
“MBA has advocated strongly for additional options to assist homeowners, and we appreciate FHFA taking the industry’s feedback in making payment deferrals available. We appreciate the efficiency this process will bring as it benefits borrowers, mortgage servicers, investors and the GSEs.”