A&B ABstract:
On April 27, the FHFA provided clarification on the repayment of mortgage loan forbearance granted in response to the COVID-19 pandemic.
FHFA Announcement
On April 27, Federal Housing Finance Agency (“FHFA”) Director Mark Calabria clarified that borrowers who have a GSE-backed mortgage will not be required to make a lump sum repayment at the end of a forbearance plan granted in response to the COVID-19 pandemic.
CARES Act
The CARES Act grants forbearance rights to borrowers with a federally backed mortgage loan. Specifically, during the covered period, a borrower with a federally backed mortgage loan who is experiencing a financial hardship that is due, directly or indirectly, to the COVID-19 emergency may request a forbearance for up to 180 days, with the possibility of up to an additional a 180-day extension.
The CARES Act is silent on when a borrower is required to repay the forborne payments. Technically, at the point the borrower is delinquent and according to the terms of the security instrument, those payments can be called due. However, in light of the current crisis, lawmakers have expressed concern that borrowers who have lost or reduced income will be able to repay the forborne payments in a lump sum following the forbearance period.
FHFA Clarification
According to the FHFA, the mortgage servicer will contact each impacted borrower 30 days prior to the end of the forbearance plan period to discuss repayment options. Potential repayment options include: (1) establishment of a repayment plan; (2) modification of the loan to add the payments to the end of the mortgage; or (3) modification of the loan to reduce the borrower’s monthly mortgage payment. If a hardship persists as of that time, the servicer may extend the forbearance plan.
Takeaway
Last week, attorneys general in 33 states, the District of Columbia, and Puerto Rico urged Director Calabria “to revise the forbearance programs so that the obligation to repay forborne payments is automatically placed at the end of the loan.” Today’s announcement may be in response to that request.
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