By Ron Hurtibise- Sun Sentinel
Feds make clear: No lump sum payment required for Fannie and Freddie home loan borrowers after coronavirus pause.
The federal agency that oversees 28 million government-backed home loans is reassuring its borrowers that they won’t be required to make a lump sum payment if they opt to hit pause on their mortgage payments as allowed by coronvavirus relief measures enacted in March.
The Federal Housing Finance Agency, which oversees home loan guarantors Fannie Mae and Freddie Mac, said Monday it wanted to correct “ongoing misinformation” about rights and options for borrowers suffering financial hardship caused by the coronavirus crisis.
The FHFA’s statements were released two days after the South Florida Sun Sentinel reported that many mortgage servicers, including large banks and smaller nonbank companies, have been telling customers that they must repay the sum of all missed payments at the end of their forbearance periods.
And many of the mortgage servicers have not been telling their customers about the available repayment options, customers have reported.
Under the federal CARES Act passed in March, all borrowers of federally backed loans, including those owned by Fannie Mae, Freddie Mac, the Federal Housing Authority (FHA), the Veterans Administration (VA), and the United States Department of Agriculture (USDA), can skip payments for up to 12 months.
The federal guarantors have been instructing mortgage servicers to grant these forbearance requests in three-month increments and require borrowers to request extensions at the end of each increment.
The guarantors have emergency programs in place that provide borrowers with alternatives to repaying those missed amounts all at once when they are ready to resume making monthly payments.
Mortgage servicers will attempt to contact homeowners 30 days before their forbearance plan is scheduled to end to discuss which repayment option will be best for them at that time, according to a statement on the Fannie Mae website released in conjunction with FHFA’s news release.
Options for customers with loans backed by Fannie Mae and Freddie Mac include spreading the payments over a fixed period of time up to a year, or modifying the loan by shifting the missed payments to the end of the loan. For borrowers who won’t be able to resume the same payments as before the crisis, a third option would reduce the amount due each month by extending the loan term.
Similar options are available for borrowers with loans backed by the VA, FHA and USDA that also do not require lump sum repayment of the missed months.
FHA, for example, will allow its borrowers to shift the missed payments into a no-interest junior loan that won’t be due until the buyer pays off the property, sells it or refinances the original loan, an FHA spokesman said.
“During this national health emergency, no one should be worried about losing their home,” a news release quoted FHFA Director Mark Calabria as saying. “While today’s statement only covers Fannie Mae and Freddie Mac mortgages, I encourage all mortgage lenders to adopt a similar approach.”
Mortgage loan servicers are prohibited from charging late fees for payments missed while borrowers are in forbearance. Language in the CARES Act prohibits credit bureaus from treating payments missed because of a coronavirus forbearance as negative information on borrowers’ credit reports. Last week, a spokeswoman for the Mortgage Bankers Association said she believes the same protection applies to post-forbearance loan modifications.
An FHFA spokesman has not responded to questions about potential credit impacts and whether loan servicers are allowed to increase interest rates for modified loans.
Diane Thompson, an attorney at the Washington D.C.-based National Consumer Law Center, which is monitoring effects of federal stimulus efforts, said by email, “I think it’s great that FHFA is taking steps to make clear that homeowners will not be required to pay back [missed] amounts in a lump sum. From what we’ve been hearing from consumers, there’s clearly been a lot of confusion in that area, which has kept homeowners from taking advantage of relief that Congress intended them to have.”
She also called upon the FHFA and Consumer Financial Protection Bureau to monitor loan servicers’ compliance and to take action against those who fail to communicate borrowers’ options clearly.
None of the federal emergency measures require lenders or mortgage servicers to provide any relief for mortgage loans that are not federally guaranteed. About 30 percent fall into that category, according to The Urban Institute, a nonprofit economic and social policy research agency.
Lenders of privately backed loans have more options, and some, including Bank of America, are offering to approve requests for forbearance and to shift the missed payments to the ends of borrowers’ loans without waiting until the forbearance periods are almost over. Thompson, of the consumer law center, said Congress should require that all home loan borrowers, not just those with federally backed loans, have the opportunity to secure forbearance and shift their missed payments to the ends of their loans.
Officials stress that homeowners who would like to skip making mortgage payments must not do so without first consulting with their mortgage servicer or they risk going into delinquency and reducing their post-forbearance repayment options.
More information about protection for consumers with federally backed loans can be found at the Consumer Financial Protection Bureau’s website at www.consumerfinance.gov/coronavirus .
Online lookup tools are available to find out whether your loan is owned by Fannie Mae or Freddie Mac. For Fannie Mae, go to knowyouroptions.com/loanlookup . For Freddie Mac, go to ww3.freddiema c.com/loanlookup .