Anita Bush: Offering Forbearance Under the CARES Act – A New Reality for Mortgage Servicers
Anita Bush is Vice President of Mortgage Servicer Product Development for FICS (Financial Industry Computer Systems Inc.), Addison, Texas, a mortgage software company specializing in in-house mortgage origination, residential mortgage servicing and commercial mortgage servicing software for mortgage lenders, housing agencies, banks and credit unions. FICS’ software solutions provide customers the flexibility to choose an in-house or cloud hosting solution. The company also provides innovative document management, API and web-based capabilities in its full suite of products. She can be reached at AnitaBush@fics.com.
Many mortgage servicers are scrambling to accommodate borrowers’ requests for forbearance. According to the Mortgage Bankers Association, 4.2 million homeowners are now in forbearance plans [Source: https://www.mba.org/2020-press-releases/june/share-of-mortgage-loans-in-forbearance-increases-to-853].
Under the Coronavirus Aid, Relief and Economic Security Act (CARES Act), mortgage servicers must offer up to 12 months of forbearance, in up to 180-day increments, to COVID-19-affected homeowners who have federally backed mortgage loans for one to four-unit family properties (about two thirds of residential mortgages). [Source: https://library.nclc.org/major-consumer-protections-announced-response-covid-19#content-1] Multifamily (five or more units) borrowers with a federally backed multifamily mortgage loan who are experiencing a COVID-19-related financial hardship may request up to 90 days of forbearance, in 30-day increments. [Source: https://library.nclc.org/sec-4023-forbearance-residential-mortgage-loan-payments-multifamily-properties-federally-backed]
During a period of forbearance, no fees, penalties, or interest shall accrue on the borrower’s account beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the terms of the mortgage contract. The forbearance provision applies during the COVID-19 Emergency or until December 31, 2020, whichever is earlier. According to Freddie Mac, the borrower must have been current or less than 31 days delinquent on their loan as of March 1, 2020 to be eligible for forbearance. [Source https://guide.freddiemac.com/app/guide/bulletin/2020-16]
According to the latest Mortgage Banker Association Forbearance and Call Volume Survey, the total loans in forbearance stands at 8.47%. While the number of new forbearance requests is declining, many servicers may still be working with forbearance borrowers for the rest of this year and into 2021. Here’s what servicers can do to handle this new reality.
Work with Borrowers to Establish Tailored Forbearance and Post-Forbearance Plans
Mortgage servicers must offer payment relief options based on the guidelines of the applicable GSEs or agencies, so servicers should closely monitor the appropriate agencies’ websites for updated guidelines. Forbearance plan options include reduced rate payments and delayed payments.
Communication is key. Many borrowers may be confused about forbearance and repayment options and their implications, so it’s important to explain them to borrowers. Fannie Mae and Freddie Mac’s “COVID-19 Forbearance Script for Servicer Use with Homeowners” are good guides for discussions about what forbearance means, how it works, and repayment options. [Sources: https://singlefamily.fanniemae.com/servicing/covid-19-forbearance-script-servicer-use-homeowners; https://sf.freddiemac.com/content/_assets/resources/pdf/covid-19_forbearance-servicer-script.pdf]
Servicers must contact borrowers 30 days before the end of the forbearance period to discuss repayment options and determine which one(s) work best for them. Servicers should take advantage of borrower-facing web applications to provide mortgage statements and information to borrowers who aren’t in forbearance, to reduce routine phone calls and give servicers more time to assist the forbearance borrowers.
The Importance of Accurate Credit Reporting
Servicers need to report forbearance accommodations to the credit reporting agencies. There are a few different approaches to credit reporting during forbearance. The CARES Act amended the Fair Credit Reporting Act by adding a subsection requiring servicers to report accounts that were current prior to forbearance as current during the forbearance period. [Source: https://www.financialservicesperspectives.com/2020/04/credit-reporting-requirements-and-covid-19-cfpb-and-fha-weigh-in/]
However, the CFPB’s statements do not provide a definitive answer as to whether credit reporting is mandated, leaving it up to servicers to determine whether they can suppress credit reporting or must report that all accounts that received an accommodation are current or delinquent based on their pre-COVID-19 status. Servicers should keep in mind that reporting accurate payment information to credit reporting agencies is important because the mortgage and other industries rely on this information to make prudent decisions.
Use Mortgage Servicing Software with Extensive Loss Mitigation Functionality
Servicers, who have many options to assist borrowers, need mortgage servicing software that can help them navigate the forbearance and post-forbearance processes. Mortgage servicing software must be able to accommodate payment deferment and other loan modifications. Servicers need servicing software with extensive loss mitigation capabilities, including a deferment/forbearance window that allows servicers to track forbearance and post-forbearance plan details, including repayment plans, loan modifications and deferment of interest.
Forbearance is the new reality for many borrowers and mortgage servicers—at least for the next year or so. By helping borrowers establish effective forbearance and post-forbearance plans and using mortgage servicing software to track those plans and handle loan modifications, servicers can ease the process for borrowers and themselves on the path to bringing the loan to a current state.
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