The Federal Housing Finance Agency (FHFA) announced today that Fannie Mae and Freddie Mac have launched a new payment deferral option in light of the unprecedented disruption caused by the coronavirus.
The new workout option, known as “COVID-19 payment deferral,” was specifically designed by Fannie Mae and Freddie Mac to help those affected by a temporary hardship related to COVID-19.
The goal is to help borrowers in a simple and straightforward manner achieve current loan status after up to 12 months of missed mortgage payments.
How COVID-19 Payment Deferral Works
- The delinquent amount is moved into a non-interest bearing balance
- No payments are made toward this balance and mortgage remains otherwise changed
- It is due at maturity or earlier if mortgage is refinanced or home sold
- No trial period is necessary and runs through automated process to expedite
The way payment deferral works is pretty simple, which is the entire point of offering it.
Say a borrower missed 12 mortgage payments that were $2,000 each. That $24,000 would be set aside in a non-interest bearing account.
It would not need to be paid down or touched at all until the homeowner either refinanced their mortgage, sold their home, or otherwise reached maturity based on the original loan term.
The borrower’s original mortgage would remain unchanged otherwise, meaning they’d resume making the $2,000 monthly payment they were accustomed to making before COVID-19 disrupted their income.
This would make getting back on track very straightforward, and hopefully doable for most homeowners, assuming they are re-employed or find new work.
Eligibility for a COVID-19 Payment Deferral
- Borrower must be on a COVID-19 related forbearance plan and unable to reinstate loan in full
- Borrower must have a hardship resulting from COVID-19 such as illness, unemployment, or reduced income
- Loan servicer must determine delinquency was temporary and borrower has ability to repay mortgage
- Must confirm borrower has resolved hardship and is committed to resolve the delinquency
- Loan must have been current or less than 31 days delinquent as of March 1, 2020
In order to be eligible for the COVID-19 Payment Deferral option, you must be in a COVID-19 related forbearance plan and able to resume regular mortgage payments.
This includes forbearance plans such as the one offered under the CARES Act, along with proprietary plans offered by individual banks, assuming Fannie or Freddie own your mortgage.
At the same time, you must be unable to fully reinstate your mortgage at the end of the forbearance period or unable to afford a repayment plan.
Additionally, the hardship has to be a result of COVID-19, not for some unrelated reason. To that end, the mortgage should have been current or no more than 31 days late as of March 1st, 2020, before this all began.
It should also be 31 or more days (one month) delinquent but less than or equal to 360 days (12 months) delinquent as of the date of payment deferral evaluation.
The loan servicer will achieve a so-called “Quality Right Party Contact,” or QRPC, in which they determine the reason for delinquency and whether it’s temporary or permanent.
This includes determining if the borrower has the ability to repay the mortgage debt, educating the borrower on workout options, and obtaining a commitment from the borrower to resolve the delinquency.
Lastly, the servicer must confirm that the borrower has resolved the hardship, though they are not required to obtain documentation of the borrower’s hardship.
The servicer must complete the COVID-19 payment deferral in the same month in which borrower eligibility is determined, though they will be granted a processing month.
So if your mortgage is 12 months delinquent as of the date of evaluation, you must make your full monthly mortgage payment during the processing month in order to receive the payment deferral.
Note that while loan servicers may report the status of payment deferral to the credit bureaus, they cannot charge the borrower administrative fees, late fees, penalties, or similar charges.
This means it shouldn’t count against you, though I did discuss the idea of forbearance preventing you from getting another mortgage.
Those who are unable to resume mortgage payments will be evaluated for other options, such as a Flex Modification that lowers payments via interest rate and/or loan term adjustments.
Overall, this confirms what we knew was coming and is excellent news for homeowners in forbearance plans.
It means they can continue making regular mortgage payments if affordable, as opposed to being forced to pay a lump sum or go on a repayment plan.
And the missed payments won’t be due until they refinance, sell their home, or the loan term ends.
The bad news is this might cause even more homeowners to opt for mortgage forbearance.
If you have an FHA loan and requested forbearance, they have a similar offering known as a “COVID-19 Standalone Partial Claim,” which is also a no-interest, junior lien that requires no payments and isn’t due until payoff, sale of your property, or when refinancing.
Those with VA loans are allowed to defer any missed payments and pay them at the end of the loan term along with the final payment.
Additionally, the VA requires any forborne payments to be non-interest bearing, meaning you won’t be penalized for doing so.
You may also be given the option to pay toward that deferred amount over time via a repayment plan or request a loan modification if unable to resume regular payments.
Read more: There Will Be a 3-Month Waiting Period to Get a Mortgage After Forbearance