As COVID-19 has forced many borrowers into dire situations, lenders continue to offer forbearance on mortgages. However, the expectations for repayment have become murky, due to misconceptions by consumers and mortgage servicers. One of these misconceptions is the belief that all missed payments must be repaid after the forbearance period ends.
In response to these misunderstandings, Fannie Mae and Freddie Mac have issued a statement clarifying that missed payments need not be paid back in a lump sum after the end of the forbearance period. They have doubled down on this statement over the past week.
“During this national health emergency, no one should be worried about losing their home," said FHFA 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.”
These comments come during a time of uncertainty regarding loan forbearance. With all the confusion surrounding how forbearance should be addressed, industry professionals expressed their support for Calabria’s statement. “It was refreshing to hear accurate information from Director Calabria. With the 'No Lump Sum' payment it should alleviate borrowers’ minds about: What happens during and after forbearance?” said David Luna, president of Mortgage Educators and Compliance.
This was a question many lenders and consumers began to ask themselves after the passage of the CARES Act, which included verbiage many considered too vague. For instance, the law states that individuals effected by COVID-19 can be offered forbearance for up to 180 days. It doesn’t, however, explain what happens after the 180 days.
As a result of this, many fell under the impression that missed payments must be repaid altogether at the end of the period. Fortunately for consumers, a lump sum will not be required, but the GSEs noted that it is an option.
In addition to the lump sum method, the GSEs added that there are other ways borrowers can repay:
- A repayment plan- Borrowers can gradually repay their debts in addition to making their regular monthly payments.
- Payment deferral- Borrowers continue to make their scheduled payments, followed by the missed payments at the end of the loan.
- Loan modification- The borrower’s original monthly payment amount is reduced.
They also noted that servicers must inform borrowers of their repayment options about 30 days before the end of the forbearance period.
“Simply put, if you are a homeowner seeking forbearance and Freddie Mac owns your loan, you are never required to make up missed payments in a lump sum," said Freddie Mac CEO David Brickman.
Although these guidelines only apply to loans backed by the GSEs, Fannie and Freddie encouraged others in the industry to follow suit.