Fannie Mae and Freddie Mac's regulator said Monday that borrowers benefiting from programs that let them skip mortgage payments due to the coronavirus pandemic won't have to make lump-sum repayments when the crisis passes.
The Federal Housing Finance Agency's announcement is meant to "combat ongoing misinformation" about the forbearance plans homeowners are entitled to seek under the $2 trillion economic stimulus package enacted last month, Director Mark Calabria said in a statement.
"During this national health emergency, no one should be worried about losing their home," Calabria said in the statement. "While today's statement only covers Fannie Mae and Freddie Mac mortgages, I encourage all mortgage lenders to adopt a similar approach."
There has been growing confusion among borrowers and lenders about how consumers would make up for the payments missed during the forbearances, which could last for as long as a year. The stimulus legislation didn't outline what happens when the forbearance period ends, prompting some lenders to tell borrowers they might have to make lump-sum payments or meet other onerous terms.
The Federal Housing Administration, part of the Department of Housing and Urban Development, as well as FHFA, have since issued guidance to lenders about what terms they should be offering. Still, many companies that service mortgages have been unsure about what the repayment terms should be and in some cases, have been dissuading consumers from taking advantage of the program.
The confusion over repayment terms is exacerbating problems the forbearance law is causing for servicers, companies that receive monthly payments from borrowers and funnel money to mortgage-bond investors.
In addition to dealing with a deluge of forbearance requests, servicers face the prospect of a liquidity crisis because they are required to advance cash to investors even when borrowers aren't paying. While they are eventually repaid by Fannie and Freddie, nonbank servicing companies could run out of cash in the meantime.
It's unclear whether Monday's clarification about lump-sum payments will do enough to address the confusion or whether regulators may need to take additional steps, particularly because repayment terms are still inconsistent among lenders.
The number of borrowers seeking forbearance is climbing as more Americans find themselves out of work or facing financial hardships due to the coronavirus pandemic. Almost 6% of borrowers had delayed making mortgage payments as of April 12, up from 3.7% a week earlier, according to the Washington-based Mortgage Bankers Association.
The stimulus law put few burdens on borrowers in extending the forbearance relief, requiring them only to attest that they're struggling and forbidding servicers from demanding documented proof of hardship. While that step was meant to make it easier for consumers to get relief quickly, officials including Calabria and Treasury Secretary Steven Mnuchin have warned that the program is meant only for those in need and not as a holiday for those who can afford to pay.
Missed payments will have to be made up by borrowers, the FHFA said Monday. Those who seek forbearance will be contacted by their loan servicers 30 days before the end of their agreements to discuss options that could include repayment plans, adding payments to the end of the mortgage or setting up loan modifications, the agency said. Forbearances also could be extended if their hardship hasn't been resolved.