Borrowers of federally backed loans owned by Fannie Mae and Freddie Mac will not have to repay missed payments in a lump sum once their forbearance periods end. Mark Calabria, Director of the Federal Housing Finance Agency (FHFA), made this clear in a statement aimed to correct consumer confusion after reports revealed loan servicers were telling borrowers they would have to repay missed payments in a lump sum. This misinformation was problematic for the tens of millions of unemployed Americans who feared they would continue to face financial hardship due to the COVID-19 emergency.
While other enterprises like the FHA, VA, and USDA have not come out with an official statement, the FHFA Director encouraged all mortgage lenders to follow suit.
The CARES Act allows borrowers of federally backed mortgage loans experiencing financial hardship caused by the COVID-19 emergency to receive forbearance, which is the postponement of payments, without the accrual of any additional fees, penalties, or interest. The Act does not address how the postponed payments will be repaid.
According to the FHFA, for Fannie Mae and Freddie Mac loans, borrowers receiving forbearance relief should expect to be contacted by their mortgage servicer about 30 days prior to the end of the forbearance period. If a borrower is still experiencing a financial hardship due to COVID-19, the forbearance period can be extended. If the borrower’s hardship has passed, the loan servicer will evaluate which of the following repayment options is available, which will depend on the borrower’s financial situation:
- Repay all of the missed payment in lump sum.
- Spread missed payments over period of time, to be paid in addition to the regular monthly payment
- Extend the term of the loan by the number of missed monthly payments
- Modify the loan (term, interest rate, etc.)
It is still not clear how the mortgage servicer will make a determination of which repayment option is available to each individual borrower, and whether a borrower will have a say in the matter.
For further discussion on this topic, check out our video interview.
Williams Parker’s COVID-19 response team is continuing to monitor these and other developments, and advise on issues arising from the Coronavirus. View the latest updates.