New COVID-19 Payment Deferral Option – Are You Eligible?
COVID-19 Payment Deferral
Effective: Beginning July 1st, 2020, your servicer must evaluate you for a COVID-19 payment deferral option in accordance with this Lender Letter.
If your hardship related to COVID-19 has been resolved and you are able to continue making your full monthly contractual payment, but cannot afford full reinstatement or a repayment plan to bring their mortgage loan current, you may be eligible for a COVID-19 payment deferral reinstatement option.
FHFA Announced on May 13th, 2002, a new forbearance repayment option that is bringing much relief to many of the almost five million homeowners now in forbearance.
This option is available as a forbearance reinstatement repayment option to all homeowners whose mortgage is owned by Fannie Mae or Freddie Mac, which own approximately 45% of all loans in the market today.
The COVID-19 Payment Deferral is something to celebrate. While there are still some questions around the guidance we have so far, this is really great news for 45% of almost five million homeowners that are skipping mortgage payments after being impacted by COVID-19.
Unpacking a COVID-19 Payment Deferral
In this article, I am going to unpack the guidance that Fannie Mae and Freddie Mac have issued to your lender regarding reinstatement options available to those impacted by COVID-19.
Payment Deferral is by far the best possible reinstatement workout option available. This new guidance offers temporary deregulation of the best-case scenario for both lender and consumer.
The COVID-19 Payment Deferral is a new workout option specifically designed to help borrowers impacted by a hardship related to COVID-19 return their mortgage to a current status after up to 12 months of missed payments.
COVID-19 payment deferral was jointly developed with Fannie Mae and Freddie Mac at the direction of FHFA.
Simplified by Design
Designed to be simple and efficient for both servicers and borrowers, this solution is for borrowers who have completed a COVID-19 related forbearance plan, or who have a confirmed but resolved COVID19 financial hardship.
The COVID-19 payment deferral option was specifically designed to be:
- A solution that is simple to explain to you, as the amount of your delinquency moves into a non-interest bearing balance, due and payable at maturity of the mortgage loan or earlier payoff; and all other terms of the mortgage remain unchanged.
- No trial period, resulting in fewer times you need to communicate with the loss mitigation department than is required for loan modifications.
- An efficient automated process for your servicer through Fannie Mae’s Servicing Management Default Underwriter™ for evaluation and decisioning case submissions.
While COVID-19 payment deferral is similar to the recently announced payment deferral announced on March 25th, 2020, there have been several enhancements to assist those who have a COVID-19 related hardship. Key differences include:
- You have experienced a financial hardship resulting from COVID-19 that impacted your ability to make their monthly mortgage loan payment, which has been resolved.
- The mortgage loan must have been current or less than 31 days delinquent as of Mar. 1, 2020, the effective date of the National Emergency declaration related to COVID-19.
- The mortgage loan must be 31 or more days delinquent but less than or equal to 360 days delinquent as of the date of evaluation.
- Certain eligibility criteria are not applicable, such as time from mortgage loan origination and rolling delinquency parameters.
- Your servicer must defer the delinquent principal and interest payments (P&I) together with any allowable servicing advances paid to third parties as a result of the delinquency into the non-interest bearing balance.
Determining eligibility for a COVID-19 payment deferral
The wording in this guidance to servicers is very precise. For that reason, we’re going to give you almost exact excerpts from the guidelines. The exception to using exact wording is where we have reworded some of the guidelines to make them more “readable”, but have not changed the meaning of any guidelines.
If a translation is required, we’ll follow excerpts with our interpretation using FMWH News as notice that our comments follow.
Determining eligibility for a payment deferral
If your loan is owned by Fannie Mae or Freddie Mac, your servicer is authorized to evaluate you for a payment deferral without receiving a complete Borrower Response Package (BRP).
What this essentially means is that their goal is to make this a minimal or no paperwork process.
NOTE: The servicer must not require a complete Borrower Response Package (BRP) to evaluate the borrower for a COVID-19 payment deferral if the eligibility criteria are satisfied.
While these guidelines did come down from FHFA, which oversees both Fannie Mae and Freddie Mac, most of this article focuses on Fannie Mae guidelines, which will cover the overwhelming majority of Federally backed Conventional mortgages.
We will cover Freddie Mac in a different article because there are subtle differences in the way the guidelines are phrased.
To be eligible, you must:
- be on a COVID-19 related forbearance plan, or
- have experienced a financial hardship resulting from COVID-19 (for example, unemployment, reduction in regular work hours, or illness of a borrower/co-borrower or dependent family member) that has impacted their ability to make their full monthly contractual payment.
NOTE: The servicer is not required to obtain documentation of the borrower’s hardship.
FMWH Note: There is some ambiguity to “Notes” like this. The servicer “is not required to obtain documentation”. Does that mean that the servicer can ask for documentation if they feel they need to?
This next section is an exact excerpt of what is required of the servicer. The important stress word here is “must”. “The servicer must”. To me this leaves room for interpretation that might vary from one servicer to another.
In a perfect world, there is one set of guidelines that everyone more or less follows. When there’s room for interpretation, servicers interpret in a way that protects them.
The likely result of a servicer not feeling like they have specific guidance from Fannie or Freddie are likely to ask for more documentation from you to prove COVID-19 hardship before offering the COVID-19 Payment Deferral option.
The servicer must achieve Quality Right Party Contact (QRPC) to
- determine the reason for the delinquency and whether it is temporary or permanent in nature;
- determine whether or not you have the ability to repay the mortgage debt;
- educate you about the availability of workout options, as appropriate; and
- obtain a commitment from you to resolve the delinquency.
Eligibility Criteria for a COVID-19 Payment Deferral
- You are able to continue making the full monthly contractual payment, and
- You are unable to reinstate the mortgage loan or afford a repayment plan to cure the delinquency.
NOTE: If you are on a COVID-19 related forbearance plan immediately preceding a COVID-19 payment deferral and the mortgage loan was previously modified pursuant to a Fannie Mae Home Affordable Modification Program (HAMP) Modification under which you remain in “good standing,” then the mortgage loan will not lose good standing and you will not lose any “pay for performance” incentive.
- The mortgage loan must be a conventional first-lien mortgage loan and may be a fixed-rate, a step-rate, or an ARM.
NOTE: The property securing the mortgage loan may be vacant or condemned. The mortgage loan must
- have been current or less than 31 days delinquent as of Mar. 1, 2020, the effective date of the National Emergency declaration related to COVID-19; and
- be 31 or more days (one month) delinquent but less than or equal to 360 days (12 months) delinquent as of the date of evaluation.
NOTE: If your hardship is related to COVID-19 but you are 31 or more days delinquent as of the effective date of the National Emergency declaration, and the servicer determines the borrower can maintain his or her full monthly contractual payment, then the servicer must submit a request for a COVID-19 payment deferral through Fannie Mae’s servicing solutions system for review and obtain prior approval from Fannie Mae.
- The mortgage loan must not have previously received a COVID-19 payment deferral.
The mortgage loan must not be subject to
- a recourse or indemnification arrangement under which Fannie Mae purchased or securitized the mortgage loan or that was imposed by Fannie Mae after the mortgage loan was purchased or securitized,
- an approved liquidation workout option,
- an active and performing repayment plan or another non-COVID-19 related forbearance plan,
- a current offer for another retention workout option, or
- an active and performing mortgage loan modification Trial Period Plan.
FMWH Note: The biggest difference between this guideline update and the original guideline issued on March 25th is the expansion of time that you can be delinquent and still qualify for the program.
Our concern here is that so many forbearances were granted on the honor system, sometimes without the homeowner’s full consent. What if there is a point in this process where the servicer requires documentation to prove hardships from COVID-19? There is enough ambiguity in the language that this could happen.
For the most part, it seems that Fannie Mae is encouraging no documentation approval of COVID-19 Payment Deferral repayment plan. We’re really not going to know until these guidelines go into effect on July 1st, 2020.
Determining the COVID-19 payment deferral terms
The servicer must defer the following amounts as a non-interest bearing balance, due and payable at maturity of the mortgage loan, or earlier upon the sale or transfer of the property, refinance of the mortgage loan, or payoff of the interest-bearing UPB:
- up to 12 months of past-due principal and interest (P&I) payments;
- out-of-pocket escrow advances paid to third parties; and
- servicing advances paid to third parties in the ordinary course of business and not retained by the servicer if allowed by state law.
All other terms of the mortgage loan must remain unchanged.
Any existing non-interest bearing balance amount on your mortgage loan remains due and payable at maturity of the mortgage loan, or earlier upon the sale or transfer of the property, refinance of the mortgage loan or payoff of the interest-bearing unpaid balance.
NOTE: If your servicer chooses to perform an escrow analysis, any escrow account shortage that is identified at the time of the COVID-19 payment deferral must not be included in the non-interest bearing balance, and your servicer is not required to fund any existing escrow account shortage.
FMWH Note: This “Note” above sounds like it means that you could be responsible for any escrow account shortages. We are recommending that homeowners be prepared for this by using a secure, digital financial locker.
A secure financial locker allows you to store the documentation that your servicer might ask for. It is vitally important that you minimize the number of contacts you have with the newly hired loss mitigation department of your servicer.
Am I Guaranteed Payment Deferral?
No, a COVID -19 Payment Deferral option is only one option of many that your servicer may offer you. Other options may be offered first, like full reinstatement or a payment plan.
Don’t be surprised if the lender first asks you if you have the ability to pay all of the skipped payments at once or over 3 to 12 months.
Just know that if your loan is owned by Fannie Mae or Freddie Mac that the COVID-19 payment option is available to you, and it is by far your best possible reinstatement option.
If you have questions about forbearance, please see our special project – ForbearanceReport.org
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Josh does a weekly mortgage market update that many are finding essential to making informed decisions about one of the biggest and most important investments you and your family will make.
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