At the direction of the Federal Housing Finance Agency, the two mortgage companies are rolling out payment deferrals, which will serve as an alternative to forbearance and loan modifications for borrowers who are struggling to remain current on their home loans. Fannie Mae and Freddie Mac accounted for upward of 46% of all mortgages originated as of 2018, according to a report from the Urban Institute.
Borrowers who are granted a payment deferral will see their delinquent principal and interest payments deferred. That balance will come due either on the mortgage maturity date, the pay-off date or upon the sale of the property, whichever comes first. The term of the loan and payment schedule will remain the same.
A payment deferral is intended “to resolve delinquencies and help homeowners remain in their homes,” Freddie Mac said on its website.
Fannie Mae described payment deferrals as “a more affordable workout that’s between a repayment plan and a modification” and noted that the option may be well suited to borrowers whose ability to make on-time payments was impacted by the national coronavirus emergency.
Borrowers granted a payment deferral will see their delinquent principal and interest payments deferred. That balance will come due either on the mortgage maturity date, the pay-off date or upon the sale of the property, whichever comes first. The term of the loan and payment schedule will remain the same.
Under a traditional repayment plan, borrowers are required to spread out their past-due amount over several months in addition to their normal monthly payments. With a forbearance plan, a borrower can suspend or lower payments for a specified time period, but must make full or partial payments for the amount owed during that time when the forbearance period ends.
Servicers, which are the companies who collect monthly mortgage payments from borrowers, will be able to start evaluating borrowers to see if they are eligible for payment deferrals beginning on July 1.
To qualify, borrowers must have encountered a financial hardship that has been resolved, and they must have the capacity to make existing monthly mortgage payments based on their contract and not require a payment reduction unlike a loan modification or forbearance.
Additionally, the mortgage must have been originated at least 12 months prior to the evaluation date. Borrowers must be between 30 and 60 days delinquent and have not received a previous deferral nor failed a non-disaster related loan modification.
The new deferred payment service would benefitted both borrowers and mortgage investors, said Mike Fratantoni, chief economist for the Mortgage Bankers Association, a trade group that represents lenders.
“Payments are then tacked on to the end of the mortgage loan, so the investors are made whole through this but it gives the borrowers a chance to get back on their feet,” he said.