FHFA, GSEs Offer Payment Deferral as Repayment Option for COVID-19 Forbearance Plans

The Federal Housing Finance Agency yesterday said Fannie Mae and Freddie Mac will employ a new payment deferral option allowing borrowers in COVID-19 related forbearance, who are able to return to making their normal monthly mortgage payment, the ability to repay their missed payments at the time the home is sold, refinanced, or at maturity.

The option will be available July 1.

“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.”

The Mortgage Bankers Association expressed support for the option. MBA President and CEO Robert Broeksmit, CMB, said the repayment option could “ease the burden for homeowners who are affected by the COVID-19 pandemic. The payment deferral option gives mortgage servicers a practical tool to help homeowners through this unprecedented time.”

Broeksmit noted a primary benefit of this option is that a homeowner’s mortgage payment will not change once the forbearance period ends. “The missed payments during forbearance will be repaid when the home is sold, the loan is refinanced or the loan reaches maturity,” he said. “MBA has advocated strongly for additional options to assist homeowners, and we appreciate FHFA taking the industry’s feedback in making payment deferrals available. We appreciate the efficiency this process will bring as it benefits borrowers, mortgage servicers, investors and the GSEs.”

In response to the COVID-19 national emergency, borrowers with a financial hardship due to the pandemic have been able to receive forbearance, which is a pause or reduction in their monthly mortgage payment. The missed payments will have to be paid back by the borrower after the forbearance ends. FHFA and the Enterprises do not require lump sum repayment at the end of the forbearance. Servicers are required to evaluate borrowers for one of several repayment options, generally referred to as a “hierarchy” of repayment and loan modification options.

Payment deferral takes the missed mortgage payments and puts them into a payment due at the sale, or refinancing of the home or the end of the loan. The borrower’s monthly mortgage payment will not change. Mortgages that exercise the payment deferral option will remain in GSE Mortgage-Backed Securities, subject to the terms of the trust agreements.

For more information, about the Fannie Mae program, click Understand Your COVID-19 Mortgage Options. For more information about the Freddie Mac program, click Lump Sum Repayment is Not Required in Forbearance.