Fannie Mae and Freddie Mac Expand Mortgage Payment Deferral Policies to Aid Struggling Borrowers
In an effort to support homeowners facing financial hardships, Fannie Mae and Freddie Mac have announced enhancements to their payment deferral policies. Borrowers will now have the option to defer up to six months of mortgage payments, promoting sustainable homeownership and ensuring the safety and stability of the Enterprises.
During the COVID-19 pandemic, over a million payment deferrals were granted by Enterprises, allowing borrowers across the nation to retain their homes. Building upon the success of these deferrals, Fannie Mae, Freddie Mac, and the Federal Housing Finance Agency (FHFA) have incorporated this solution into their standard loss mitigation toolkit, making it available to all eligible borrowers experiencing financial challenges.
Enhancing Mortgage Payment Deferral Policies for Homeowners in Need
Payment deferral allows borrowers to maintain their regular monthly mortgage payments by moving any past-due amounts to the end of the loan. This non-interest-bearing balance becomes due and payable upon maturity, sale, refinance, or payoff. Initially implemented for borrowers facing COVID-19 hardships, the payment deferral program has now been expanded to include other eligible hardships.
Borrowers who find themselves in financial distress should reach out to their servicers to explore if payment deferral is a suitable solution for their specific circumstances. Services may offer various options, including enhanced payment deferral, reinstatement, repayment plans, or loan modifications, depending on individual situations.
Since 2011, FHFA and the Enterprises have collaborated to develop policies that assist servicers in effectively managing mortgage payment delinquencies, with the primary goal of keeping struggling borrowers in their homes whenever possible. These efforts aim to minimize losses for both the Enterprises and taxpayers.
The implementation of the enhanced payment deferral policies will be carried out through collaboration between the Enterprises and servicers. While a voluntary adoption date is set for July 1, 2023, it will become mandatory for servicers to offer this option starting from October 1, 2023.
Mortgage Payment Deferral Starting July 1
Starting July 1, struggling homeowners will have access to a revamped policy that can provide significant assistance. Fannie Mae and Freddie Mac are expanding their deferment rules, enabling eligible borrowers to defer mortgage payments for two to six months. The missed payments will be added to the end of the mortgage term, helping borrowers avoid foreclosure and late penalties.
This update builds on the previously offered deferment option during the COVID-19 pandemic, where Fannie Mae and Freddie Mac provided over a million payment deferrals. Recognizing the effectiveness of this solution, FHFA Director Sandra L. Thompson states that it will now be a crucial part of their standard loss mitigation toolkit, available to borrowers facing eligible hardships.
A mortgage deferment allows borrowers to move missed payments to the end of the loan term. For instance, if a loan has five years remaining, the total deferred amount becomes due at that time. However, if the property is sold, transferred, or refinanced before the loan term ends, the unpaid balance will be due during the transaction.
Qualifying for Mortgage Deferment and Implementation Timeline
Starting on July 1, the deferment program will be a voluntary option for mortgage servicers, and it will become mandatory on October 1, 2023.
To qualify for a mortgage deferment, borrowers must meet certain requirements. The mortgage must be backed by Fannie Mae or Freddie Mac, and it should be a conventional first-lien mortgage loan. The mortgage must have been held for at least a year, and borrowers should have missed more than one payment, typically being delinquent by 2 to 6 months. Additionally, the mortgage should have substantial time remaining before maturity or projected payoff, and borrowers must demonstrate their ability to resume regular mortgage payments.
While participating in a mortgage deferment, it is important to note that the unpaid balance from skipped payments will be due as a one-time balloon payment in the future. However, this deferred balance does not accrue interest, unlike the regular interest-bearing balance.
If you anticipate difficulty in making mortgage payments, it is crucial to be proactive and contact your mortgage service provider immediately. Most providers offer various relief options, including loan modifications, forbearance, and deferment. By engaging with them, you can identify the most suitable option for your circumstances and work towards resolving the issue in collaboration with your mortgage company.
