No Lump Sum Following Forbearance

To combat ongoing misinformation, the Federal Housing Finance Agency (FHFA) reiterated that borrowers in forbearance with a Fannie Mae or Freddie Mac-backed mortgage are not required to repay the missed payments in one lump sum.

According to the McDash Flash Forbearance Tracker from Black Knight, as of April 23, 2020, more than 3.4 million homeowners, or 6.4% of all mortgages, have entered into COVID-19 mortgage forbearance plans.

“During this national health emergency, no one should be worried about losing their home," said Director Mark Calabria. “No lump sum is required at the end of a borrower's forbearance plan for Enterprise-backed mortgages. To help homeowners navigate the forbearance process, FHFA partnered with CFPB on the Borrower Protection Program to provide homeowners accurate information about forbearance and address concerns noted in some consumer complaints. While today's statement only covers Fannie Mae and Freddie Mac mortgages, I encourage all mortgage lenders to adopt a similar approach."

In response to the COVID-19 national emergency, the GSEs permitted borrowers with financial hardship due to the pandemic a forbearance option, which is a pause or reduction in their monthly mortgage. The missed payments will have to be paid back by the borrower. For those borrowers who opt for forbearance, their mortgage servicer will contact them about 30-days before the end of the forbearance plan to see if the temporary hardship has been resolved and discuss a variety of repayment options. If the hardship has not been resolved, the forbearance plan can be extended. If the hardship has been resolved, the servicer will work with the borrower to:

• Set up a repayment plan;
• Modify the loan so the borrower's payments are added to the end of the mortgage; or
• Set up a modification that reduces the borrower's monthly mortgage payment.

According to Black Knight CEO Anthony Jabbour, the recent FHFA announcement of a four-month limit on advance obligations for servicers of mortgages backed by Fannie Mae and Freddie Mac provides the industry with some much-needed clarity.

“Having a four-month end date on the period in which servicers need to advance principal and interest payments on behalf of homeowners in forbearance is extremely helpful to our servicing clients,” said Jabbour. “Still, even knowing that time limit, with today’s number of forbearance plans, servicers are still looking at more than $7 billion dollars in advances over those four months. And the forbearance numbers are climbing steadily, day by day. Clearly, this remains a challenging situation all around.”