Homeowners Who Cannot Pay Their Mortgages Have a Deferral Option
Many troubled homeowners who delay their mortgage payments through so-called forbearance programs will benefit from a new repayment option, allowing them to make missed payments when the home is sold or the term of the loan has expired. the Federal Housing Finance Agency said on Wednesday.
The deferral option applies to homeowners who have a mortgage secured by the two government-controlled mortgage companies that the FHFA oversees: Fannie Mae and Freddie Mac.
Under the CARES Act Stimulus Act, borrowers receiving government guaranteed loans – through the Federal Housing Administration, the Department of Veterans Affairs, the United States Department of Agriculture, Fannie Mae or of Freddie Mac – have the right to delay their mortgage payments for up to a year if they have financial difficulties related to the Coronavirus pandemic.
Most homeowners have government guaranteed loans, and millions of people have opted out. But there has been great confusion over how borrowers will make up for missed payments.
Consumer advocates say some mortgage companies have falsely told borrowers that they have to repay all missed payments in a lump sum after the forbearance period ends or have made vague comments that lead stressed consumers to assume this is the case. Government agencies have insisted that borrowers with a government guaranteed loan do not have to repay in a lump sum and that several reimbursement options are available.
In a statement, FHFA Director Mark Calabria said the additional deferral option “responsibly simplifies options for homeowners while providing an additional tool for mortgage agents.”
Under this option, after the forbearance period is over, if a borrower with a loan secured by Fannie Mae or Freddie Mac cannot afford to make payments in excess of their initial mortgage payment, a deferral should be offered. from July 1, according to the FHFA.
Fannie Mae and Freddie Mac previously announced a deferral option, but at the time carriers weren’t required to offer it until next year.
The new option, which is similar to the one already offered by the FHA, retains the same original monthly mortgage payment from the borrower. When the loan ends, such as after 30 years or when a homeowner sells their home, the missed payments must be paid all at once. In the case of refinancing, the missed payments would be added to the principal of the new loan.
Prior to the deferral option, borrowers who could only make their initial monthly payment may have received a loan modification. This would have kept mortgage payments at the same level by extending the loan, which would increase the total amount a borrower would have to repay.
If, after the forbearance period, a borrower still cannot afford their original mortgage, loan modifications are available that would reduce monthly payments by extending the term of the loan. These changes, however, have limits on the extent to which payments can be reduced, so that a person who never finds a job could still lose their home.
Mortgage Bankers Association President Robert Broeksmit said the deferral option for Fannie Mae and Freddie Mac “will ease the burden on homeowners.”
A group of attorneys general, including the Atty of California. General Xavier Becerra, wanted the regulators to go further. They said mortgage agents already seemed overwhelmed by the increase in forbearance requests and doubted companies could effectively assess borrowers for a variety of repayment options.
In a letter to the FHFA, the attorneys general asked the agency to require the services to automatically account for missed payments until the end of a borrower’s loan in the form of monthly payments – so that a 30-year loan, for example, becomes a 30½-year loan if someone misses six months.
Then, if people still need help, more complicated changes could be considered, the attorneys general wrote.