COVID-19 Forbearance Lump Sum Repayment “An Option”

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Fannie Mae and Freddie Mac recently clarified that the lump sum repayment at the end of the loan forbearance plan “is an option for repaying missed payments”. The two government-sponsored enterprises (GSEs) also explained the other options for repaying the missed payments amid growing confusion among millions of homeowners who have sought forbearance after being affected by the Coronavirus Disease of 2019 (COVID-19) pandemic.

“We do not require a homeowner to repay missed payments all at once at the end of the forbearance plan, unless they choose to do so”, Fannie Mae CEO Hugh R. Frater said in a statement. Freddie Mac CEO David Brickman, in a separate statement, made a similar claim saying, “you are never required to make up missed payments in a lump sum”.

The GSEs made the clarifications to combat ongoing misinformation among homebuyers seeking forbearance because of the COVID-19.

While the Coronavirus Aid, Relief, and Economic Security (CARES) Act said that borrowers whose mortgages are owned by any of the GSEs could be eligible to suspend making payments up to 180 days, the Act did not clarify what will happen at the end of the term. Servicers would normally call borrowers at least a month before the forbearance term ends and reevaluate their situation to figure out the best repayment option that suits their situation.

Other repayment options available after the forbearance

Borrowers who cannot afford to reinstate their mortgage by paying a lump sum because of the COVID-19 National Emergency could ask their servicers for the following repayment options:

  • Through a repayment plan where the servicer will spread the missed payments on succeeding payments after the forbearance term until the borrower becomes current with the payment.
  • Through a payment deferral or loan modification where the servicer allows the borrower to continue paying the same amount after the forbearance term, then repay the missed payments by adding them at the end of the mortgage.
  • Through loan modification where the servicer reduces the original monthly payment of the borrower to make it more affordable.

FHFA offers homeowner protection during the pandemic

The Federal Housing Finance Agency (FHFA) has partnered with the Consumer Financial Protection Bureau (CFPB) to help homeowners navigate the forbearance program by providing them accurate information. FHFA Director Mark Calabria confirmed that homeowners are not required to pay a lump sum at the end of the forbearance plan if the loans are owned by any of the GSEs. In a statement, the FHFA said that servicers could extend the forbearance plan if the national emergency-related hardship is not resolved.