FHFA Announces Payment Deferral Option for Homeowners in COVID-19 Forbearance Plans
To help homeowners who are in COVID-19-related forbearance, the Federal Housing Finance Agency (FHFA) has announced that Fannie Mae and Freddie Mac (the Enterprises) are making available a new payment deferral option. The payment deferral option allows borrowers, who are able to return to making their normal monthly mortgage payment, the ability to repay their missed payments at the time the home is sold, refinanced, or at maturity.
"For homeowners in forbearance due to COVID-19, payment deferral allows them to make up missed forbearance payments when they sell their home or refinance," said FHFA Director Mark Calabria. "This new forbearance repayment solution responsibly simplifies options for homeowners while providing an additional tool for mortgage servicers. Borrowers who can pay their mortgage should, because missed payments remain an obligation that will ultimately have to be repaid."
In response to the COVID-19 national emergency, borrowers with a financial hardship due to the pandemic have been able to receive forbearance, which is a pause or reduction in their monthly mortgage payment. The missed payments will have to be paid back by the borrower after the forbearance ends. FHFA and the Enterprises do not require lump sum repayment at the end of the forbearance. Servicers are required to evaluate borrowers for one of several repayment options, generally referred to as a "hierarchy" of repayment and loan modification options.
Payment deferral is one of the repayment options. Payment deferral takes the missed mortgage payments and puts them into a payment due at the sale, or refinancing of the home, or the end of the loan. The borrower's monthly mortgage payment will not change. Mortgages that exercise the payment deferral option will remain in Enterprise Mortgage-Backed Securities, subject to the terms of the trust agreements.
Servicers will begin offering the payment deferral repayment option starting July 1, 2020.
In addition to the new payment deferral option, borrowers with COVID-19 related hardships can still utilize other options that include reinstatement, repayment plan or loan modifications based on their individual situations.
"NAR applauds the FHFA and Director Calabria for offering solutions and some much-needed certainty to the millions of U.S. families facing unemployment and unsure how they will cover next month's bills," said National Association of REALTORS® President Vince Malta. "This flexibility will be invaluable for American consumers as we begin to emerge from this crisis and restart our economy," said Malta, broker at Malta & C, Inc., in San Francisco, CA."
Robert D. Broeksmit, president and CEO of the Mortgage Bankers Association (MBA), released the following statement in response to the FHFA's announcement:
"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. The payment deferral option gives mortgage servicers a practical tool to help homeowners through this unprecedented time. A primary benefit of this option is that a homeowner's mortgage payment will not change once the forbearance period ends. The missed payments during forbearance will be repaid when the home is sold, the loan is refinanced or the loan reaches maturity."
"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," Broeksmit added.
In addition, FHFA announced that Fannie Mae and Freddie Mac are extending their moratorium on foreclosures and evictions until at least June 30, 2020. The foreclosure moratorium applies to Enterprise-backed, single-family mortgages only. The current moratorium was set to expire on May 17.
"During this national health emergency, no one should be forced from their home," said Director Mark Calabria. "Extending the foreclosure and eviction moratoriums protects homeowners and renters with an Enterprise-backed mortgage and provides certainty for families."