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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.

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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.

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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:

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  • 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.

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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).

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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.

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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.

Expert Answers

If you have questions about forbearance, please see our special project – ForbearanceReport.org

If you would like to be introduced to someone that I know and trust to talk about a new purchase or refinance loan, click on any of the graphics in the sidebar or any “Find the Right Lender.  Find the Right Loan” link in the article.

If you want the truth about interest rates, home values, and what’s going on in the market, Josh Lewis, Broker/Owner of BuyWise Mortgage, a California Mortgage Broker, is one of the markets people I know!

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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If you have questions about this article, please ask your questions or leave your comments below.

About the Author

Scott Schang

A 20 year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues, and making sense of complicated real estate and mortgage topics on this website since 2007

Leave a Question or Comment About this Topic

  • Mr. Mo says:

    I was 6 months behind on my mortgage and it was sold by BOA to SLS. I have a Freddie Mac backed loan. I then entered covid forbearance for 18 months. I am now 24 months behind in payments and was told by SLS that I cannot get any deferral and the only thing I can do to avoid a died in lieu is get immediately current with 24 moths of payments. I was originally told I only needed to get the 6 months current to qualify for deferral then SLS came back and said sorry they were earlier mistaken and I have to now come up with the 24 month payment. Do I have any options outside of SLS for further assistance? Thanks

    • Scott Schang says:

      If I am reading this correctly, being 6 months behind prior to forbearance protection from the CARES Act would put you in a much different situation than anyone that was current at the time of the CARES Act.

      You are probably protected by the federal foreclosure moratorium until December 31st, 2021, and I would do the following things.

      First, find a HUD counselor to help educate you on your legal options. Here’s a list from the CFPB – https://www.consumerfinance.gov/find-a-housing-counselor/

      Next, google “HAF funds in (your city name)”. Homeownership Affordability Funds were provided to the States to help folks affected by COVID with grants catch up on payments. I’m not sure if being delinquent prior to COVID will impact your ability to apply for these grants.

      Communicate proactively with SLS. Do not avoid them or hope they will go away. I believe you should be able to negotiate payment arrangements for the 18 months of missed payments during CARES Act forbearance.

      Finally, you have to be honest with yourself whether or not you can afford to pay back 24 months of payments. Do you owe less than the home is worth? It might be worth considering selling the home, taking the money, and getting back into the market in a way that is more affordable.

      If you let the bank foreclose on your home, even a deed in lieu, you’re going to be restricted from buying again for a minimum of 3 years before qualifying for an FHA loan.

      Hope this helps?

      • Mr. Mo says:

        Thanks for the informative reply. I did speak with a non-profit that represents HUD in my area and it sounds like the policies are still very fluid right now. They said most loan servicers want to avoid foreclosure, as many borrowers are dealing with this including many in my situation who were already delinquent when entering forbearance. He said the lenders are overwhelmed with requests right now and policy is being formed on the fly. The comment was made that there are serious issues with the lack of guidance given up-front on delinquent borrowers placed on forbearance and not offering some sort of deferral. I suspect many of the lenders are telling their cust svc reps to go hard line and get money while they can because once policies are finalized it will be difficult for the customer to get any of that possible overpayment money back.

        • Scott Schang says:

          I’ve been hearing the same thing, and we tried to get in front of this topic because we saw something similar in 2008. The speed at which this whole thing happened, over 5 million homeowners stopped making payments in a 90 day period, we knew there was going to be fall out.

          Sounds like you’re doing the right thing. Continue to communicate with the servicer, consider all of your options, and make proactive decisions. At some point, they’ll get to your file and they are going to expect some kind of resolution for the missed payments.

          Here is my direct email in case you have anything else you would like a second opinion on – scott@findmywayhome.com

          I would also consult a local real estate agent and see what your options for avoiding foreclosure by selling might look like.

          Good luck!

  • Amy says:

    Hi, I purchased a house 4 years ago with a large income that I no longer have now. I have Fannie May mortgage through wells fargo that I received a covid 19 financial hardship with for 17 months. Prior to my hardship I had never missed one payment nor had a late payment. My hardship started in April 2020. I am now able to start making payments again and did make one as of Oct /2021. After speaking with Wells fargo on the phone last week, today I received a packet from Wells Fargo requesting tons of documentation including financial statements. I just know with my income as it is now it won’t look good because I barely make enough to pay the mortgage but with my fiancés help will continue to be able to do so with no problem. I’m trying to get on a covid 19 deferral plan and was wondering if my income will now prevent that from happening or am I protected by Fannie May to prevent foreclosure? Any advise would be greatly appreciated as I am worrying like crazy. Thank you so much!

    • Scott Schang says:

      Hi Amy, the fact that you made your payment in October is great, and is exactly what you need to do. I’m surprised that Wells didn’t automatically give you the deferment.

      In my opinion, you are worrying about something that you should not be. The ONLY thing that Wells cares about is that you will be able to make your payments moving forward. They cannot take your home from you because you “might not” be able to make the payments “on paper”.

      If anything, your reduced income will result in a deferment because there is no realistic way that you can add those skipped payments to your current payment without creating a financial hardship.

      Complete the paperwork and continue to make your monthly payment. If you get nervous or want a second set of eyes on the paperwork, feel free to reach out to me directly at scott@findmywayhome.com

      We have contacts at Wells Fargo and may be able to get clarity if there is something that you do not understand.

      Don’t worry. I hope this helps 🙂

  • Eli says:

    Can I specifically request the Fannie Mae’s (my loan owner) COVID-19 payment deferral program of my predatory service provider Penny Mac?

    Just made a comment about them on their page on your side ????

    • Scott Schang says:

      Hey Eli, oh buy, I really wish I had a good answer for you. Unfortunately, if your mortgage is no Federally backed, they are only encouraged to follow the CARES Act and the offer deferment as a reinstatement option.

      I’m not sure where in the country you are, but New York passed a State law month that requires any lender licensed in their State to follow CARES Act protections for homeowners. I would expect more pressure from the States on these servicers in the future.

      My last thought is that your lender does not want your house. If you cannot pay back all of the skipped payments at once, they should work with you to find a solution.

      Good luck!

  • palma says:

    Hi Scott….If I defer my delinquent payments to the end of my 15 year loan, would that forbearance note stay in my credit report for 15 years? Thanks so much.

    • Scott Schang says:

      Very good question! It should not stay on your credit report because you would no longer be in forbearance. Technically, once you defer the payments, your loan is considered current, and in good standing.

      Anything reported to your credit report would most likely be a mistake. It’s important that you monitor your credit through this. We created a website to help homeowners navigate these questions, and we have a really valuable tool available to you to help you communicate with your servicer, as well as monitor your credit for free.

      You may go to https://forbearancereport.com/finlocker and claim a free, secure, digital financial locker. There are also some tools in there that will help you understand your options after forbearance.

      You should be ok. Trust, but verify 🙂

      I hope this helps?

  • Ryan says:

    “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.” Any idea how lenders will be handling this. When they ask if we can repay do we just say nope, can’t repay, need deferral please or will they be asking for financials such as pay stubs and bank statements. In the end is it the lender that determines if we are able to repay or the borrower.

    • Scott Schang says:

      Really good question, Ryan. In an effort to treat all borrowers fairly, and the same, I don’t see any way around requesting proof of the ability (or inability) to continue making on-time payments with no problem. This will most likely include assets documentation (bank statements) and employment/income documentation and a credit report. Individual servicers and lenders are going to determine what this process looks like internally.

      You are also correct, the CARES Act does provide certain protections, then FHFA, FHA, VA & USDA all have their guidance. Federally backed mortgages make up about 70% of the mortgages on the market, but then you have the individual actions of all of the non-federally backed mortgages.

      We created this resource to help consumers navigate these questions, look up your servicer’s policies, and read feedback from other homeowners that are clients of your servicer.

      Step 1 – Visit: ForbearanceReport.org to see how your servicer is handling its customers.
      Step 2 – Be Prepared: Claim your free, secure financial locker that FinLocker is offering on ForbearanceReport
      Step 3 – Contact your servicer after you know your rights, options, and have your documentation in your digital locker for easy transfer to the servicer. This prevents multiple calls, faxing things back and forth, and the it eliminates the risk of exposing your personal financial documentation online (by avoiding email).

      I hope this helps?