With more than 6% of borrowers in forbearance plans [1] on their mortgage loans, the question on many housing professionals’ minds is what’s next?
More than 3.4 million homeowners will benefit from temporarily suspending their mortgage payments, according to data from Black Knight, but the details of how and when they repay those missed months of payment are still being ironed out.
In order to help borrowers as quickly as possible in this unique and sudden financial crisis, the federal government is extending forbearance for any borrowers of government-backed loans who claim financial hardship. Borrowers did not have to undergo a lengthy application process.
As such, the task of working with individual homeowners to determine the best approach to repayment will be left for later. Thus, “the real chaos won’t start until the pandemic passes,” stated an article in Bloomberg [2] this week.
Servicers will be dealing with a large volume of borrowers who need to work out repayment plans, while also working to ensure they are following new requirements set by the Federal Housing Finance Agency, Fannie May, or Freddie Mac. Meanwhile borrowers may be facing confusion or misinformation regarding their loan terms following forbearance.
Servicers are already dealing with an uptick in call volumes. Thus far, Mr. Cooper Group Inc., told Bloomberg it has bolstered its servicing centers by 40% since the pandemic ensued, and the company’s website encourages borrowers to apply for assistance online due to the “high volume of calls we are now seeing and anticipate for the foreseeable future.”
Michael Stegman [3], senior research fellow in the Center for Household Financial Stability at the Federal Reserve Bank of St. Louis, told Bloomberg, “expect even more chaos when forbearance ends.”
Already, the Federal Housing Finance Agency is working hard to dispel any rumors or worries that borrowers will have to repay their missed mortgage payments in a lump sum [4] at the end of their forbearance period.
Fannie Mae and Freddie Mac will require servicers to set up a repayment plan or loan modification before the end of the forbearance plan if the borrower’s financial hardship has ended. The loan modification could lower a borrower’s monthly mortgage payment and may add missed payments on to the end of the mortgage loan.
In cases where it is necessary, forbearance may be extended, according to FHFA.
The Federal Housing Administration will allow missed loan payments to become a second lien for borrowers that they will repay when they refinance or sell their home. The FHFA may announce a similar plan.
There is the potential for servicers to become overloaded with loan modification applications similar to in the 2008 financial crisis.