What’s Next: Loan Forbearance Options Become Clearer

What next?  This question is what a lot of people impacted by COVID-19 are asking themselves, especially when it comes to their mortgage loans.   Although still not completely clear, we are getting more and more information every day.    Based on the information released this week, there is some good news and bad.

Update from Fannie Mae and Freddie Mac

First the good news.  Fannie Mae and Freddie Mac issued statements this week that while borrowers who opted to take forbearance can choose to pay back the full sum of the back payments at the end of the forbearance period, there will be other options.  In Fannie Mae’s statement, CEO Hugh Frater said, “We want every homeowner who is struggling because of this pandemic to know they have mortgage options.  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.”

Freddie Mac CEO David Brickman said, “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. We encourage homeowners facing hardship to work with their servicer to identify the plan that’s appropriate for their unique situation.”  What this means is that struggling homeowners will not risk falling off a cliff when the forbearance period ends.

What Does This Mean To You?

If you are in loan forbearance, you can expect your loan servicer, the company to whom you write your check, to begin trying to contact you 30 days prior to the ending of the forbearance period.  You should look out for this communication and make sure that you are responsive when you receive it.  If you do not receive a communication, be proactive.  As I have written in earlier posts and articles, call volume will be excessive when the loan servicing companies work to unwind the forbearance backlog.

Deferrals As a Loan Forbearance Option

Another announcement came from the Federal Housing Finance Agency (FHFA).  The FHFA has directed Fannie Mae and Freddie Mac to offer payment deferrals in addition to forbearance.  This option provides an alternative to forbearance and loan modifications for struggling homeowners to remain current on their home loans.  Borrowers opting for a payment deferral will see their delinquent principal and interest payments deferred. Instead of in the months following the hardship, the owed balance will come due either on the mortgage maturity date, the pay-off date or upon the sale of the property, whichever comes first. This option will not impact the term of the loan and payment schedule.  There is not a lot of information as to whether you can move to one of these programs ahead of the end of your forbearance period, but it is likely worth a call.

The Bad News of Receiving Future Loans

The bad news came through the rumor mill.  There MAY, I want to stress may, be an impact on the ability of homeowners who take forbearance or other options to get loans for a period of time subsequent to the forbearance.  The numbers specifics that were shared with me assumed a 12-month prohibition on loans new Fannie Mae loans post forbearance.  I would stress that this allegedly came from Fannie Mae, but there were no specifics or updates on their site regarding this. Also, I could not find any official announcements as to the veracity of this.

The reason that I am adding it to this update is threefold.  The first is to highlight the ever-changing aspect of the mortgage market and the impact of coronavirus on homeowners.  The others are cautionary.  Forbearance and other options are NOT program features.  They are methods to get through hardship.  If you need them, the possible aforementioned impact is of little consequence.  It you do not need the help and are using the payment moratorium for some type of financial benefit; you may find some unintended consequences.  Finally, if you are divorcing and you enter forbearance AND this rumor is true, you could find yourself unable to adhere to a marriage settlement agreement which dictates the requirement to refinance in a set period.

What’s Next Post-Forbearance?

So, as to what’s next, I think that it is safe to say that nobody definitively knows.  You can likely expect measures on the part of servicers to aid homeowners to get back on track. However, as to what that looks like, we have yet to fully know.  Until then, keep informed and make your decisions in a deliberate and strategic manner.  As always, when in doubt, consult a professional.

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