Responding to COVID-19: FHFA Announces new Repayment Options Starting July 1

May 19, 2020 Maria Walliser-Wejebe

The Federal Housing Finance Agency (FHFA) announced last week that Fannie Mae and Freddie Mac are making available a new payment deferral option allowing borrowers in forbearance to repay their missed payments when their homes are sold, refinanced, or at maturity. Servicers will begin offering the repayment option starting July 1, 2020.

Forbearance is when a mortgage servicer – that is the company that sends the mortgage statement and manages the loan – or the lender allows borrowers to pause or reduce payments for a limited period of time. A forbearance does not forgive paused payments, and homeowners should expect to resume making payments if and when their income is restored.

“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 a previous announcement, the Federal Housing Finance Agency (FHFA) had clarified that borrowers in forbearance with either Fannie Mae or Freddie Mac-backed mortgage would not be required to repay missed mortgage payments in one lump sum. This announcement was meant to clear misinformation and potentially alleviate some of the anxiety currently felt by borrowers worried about the long-term impacts of forbearance.

Prior to COVID-19 disruptions affecting the U.S. economy, the overall forbearance rate was 0.25%, according to the Mortgage Bankers Association (MBA). However, by the start of May, over 4 million borrowers were already in either bank or government forbearance programs, representing approximately 7.7% of all active mortgages. Forty-four percent of the loans currently in forbearance are Enterprise-backed and are subject to the new FHFA policies.

Two forms of homeowner protection were created in March as a part of the CARES Act for those with federally-backed mortgages:

First, a lender or loan services may not foreclose on the homeowner for 60 days, beginning on March 18, 2020. Specifically, the CARES Act prohibits lenders and services from beginning a judicial or non-judicial foreclosure against the homeowner, of from finalizing a foreclosure judgement or sale, during this period of time. These protections were set to expire last Sunday May 17, but the FHFA and Federal Housing Administration (FHA) announced May 14 that the agencies would be extending their respective moratoriums on foreclosures and evictions until at least June 30.
Second, homeowners experiencing financial hardship due to the COVID-19 pandemic have the right to request a forbearance for up to 180 days. The homeowner then has the right to request an extension for up to 180 days. The homeowner must contact their loan servicer to request a forbearance; owners don’t need to submit additional documentation to qualify other than a claim to have pandemic-related financial hardship.

Homeowners looking for relief should begin by identifying who services their mortgage. Secondly, to be eligible for protections under the CARES Act, a homeowner’s mortgage must be federally owned or otherwise backed by a federal agency. For more information on navigating protections under the CARES Act, see “Mortgage and housing assistance during the coronavirus national emergency.” on the Consumer Protection Finance Bureau’s website.