FHFA Announces Deferral Option On GSE Mortgages

The Federal Housing Finance Agency announced Wednesday that homeowners in forbearance can now opt to repay missed payments on Freddie Mac and Fannie Mae loans at the time their home is sold, when it is refinanced or at the end of the mortgage.

“For homeowners in forbearance due to COVID-19, payment deferral allows them to make up missed forbearance payments when they sell their home or refinance,” said FHFA Director Mark Calabria. “This new forbearance repayment solution responsibly simplifies options for homeowners while providing an additional tool for mortgage servicers.” 

Calabria added, “Borrowers who can pay their mortgage should, because missed payments remain an obligation that will ultimately have to be repaid.”

Eric Kaplan, the Director of the Milken Institute Center for Financial Markets Housing Finance Program, praised the move.

“This is a great step that will likely help many Americans and their families rebound from the COVID-19 crisis without unduly hurting the GSEs,” Kaplan said in a Tweet.

Mortgage Bankers Association President and CEO Robert D. Broeksmit said the the deferral option “gives mortgage servicers a practical tool to help homeowners through this unprecedented time.”

“A primary benefit of this option is that a homeowner’s mortgage payment will not change once the forbearance period ends,” Broeksmit said. “The missed payments during forbearance will be repaid when the home is sold, the loan is refinanced, or the loan reaches maturity.”

The $2 trillion CARES Act includes a moratorium on foreclosures and the right to forbearance on federally backed mortgages. Forbearance allows borrowers to put off payments for at least 180 days if they suffer economic hardship during the pandemic.

The MBA estimates that there were 4 million American homeowners – or 7.91 percent of all mortgages – in forbearance as of May 3.

FHFA does not require lump sum repayment at the end of the forbearance on Fannie and Freddie-backed loans. Instead, lenders are required to evaluate borrowers for one of several repayment options, known as a “hierarchy” of repayment and loan modification options – with payment deferral being one of the options.

In addition to the new payment deferral option, borrowers with COVID-19 related hardships can still use other options that include reinstatement, repayment plan, or loan modifications based on their individual situations.

The payment deferral option will start July 1, FHFA said.

Iowa Attorney General Tom Miller, who joined dozens of other attorneys general in pressing regulators to do more to support borrowers, called the FHFA announcement “good news.”