No Lump Sum at the End of Forbearance

Forbearance on your mortgage

On April 27, 2020, the Federal Housing Finance Administration (FHFA) clarified misinformation that servicers and lending institutions have provided to homeowners. The FHFA clarification will only apply to mortgages that are owned by Fannie-Mae or Freddie-Mac. Specifically, you will not have to make a lump sum payment at the end of any forbearance for loans owned by Fannie-Mae or Freddie-Mac. Click here to learn if Fannie-Mae owns your mortgage, or click here to see if Freddie-Mac owns your mortgage. Check both sites.

If Freddie or Fannie owns your mortgage, then you are entitled to a six-month forbearance

If Freddie or Fannie owns your mortgage, then you are entitled to a six-month forbearance on your mortgage. To qualify, (1) you request a forbearance from your servicer, AND (2) certify that you are experiencing economic hardship resulting from the Covid-19 Pandemic. Sec. 4022. Foreclosure Moratorium And Consumer Right To Request Forbearance. At the end of the six months, the homeowner can request an additional six-months.

Sec. 4022(c) states:

(c) REQUIREMENTS FOR SERVICERS.—
(1) IN GENERAL.—Upon receiving a request for forbearance from a borrower under subsection (b), the servicer shall with no additional documentation required other than the borrower’s attestation to a financial hardship caused by the COVID–19 [H. R. 748—211] emergency and with no fees, penalties, or interest (beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the terms of the mortgage contract) charged to the borrower in connection with the forbearance, provide the forbearance for up to 180 days, which may be extended for an additional period of up to 180 days at the request of the borrower, provided that, the borrower’s request for an extension is made during the covered period, and, at the borrower’s request, either the initial or extended period of forbearance may be shortened.

At the end of the forbearance, the borrower has the following options:

• Set up a repayment plan;
• Modify the loan, so the borrower’s payments are added to the end of the mortgage; or
• Set up a modification that reduces the borrower’s monthly mortgage payment.

On April 20, 2020, I wrote a blog titled “Should I Agree to a Forbearance Agreement?” Click here for a link to that blog. The Should I Agree blog gave an example of a Select Portfolio Servicing (SPS) agreement. SPS sent the forbearance agreement to a customer. The forbearance agreement trapped the customer into agreeing to items to which the customer was entitled by law. In addition, the forbearance agreement attempted to have her waive safeguards guaranteed by law.

I do have one caveat

The FHFA explanation clarifies the misinformation given by servicers and banks. However, the modification option adding missed payments to the back of the loan will probably raise additional issues.

I do have one caveat. A friend searched their servicer’s website attempting to secure a forbearance as Freddie owned my friend’s loan. My friend showed me a form that he downloaded. The form required a significant amount of information similar to what is required for a modification as opposed to a link to request the Freddie forbearance or a two-line form that merely asked for the Freddie forbearance and an affidavit that states that the homeowner’s financial problems were Covid-19 related.

Stay safe,

Jerry