On May 13, 2020, Fannie Mae in Lender Letter 2020-07 and Freddie Mac in Bulletin 2020-15 announce a COVID-19 payment deferral that was developed at the direction of the Federal Housing Finance Agency. Servicers may begin to evaluate borrowers for a COVID-19 payment deferral starting July 1, 2020.
The payment deferral is designed to help borrowers affected by a hardship related to COVID-19 to return their mortgage to a current status after up to 12 months of missed payments. The missed payments would be placed into a non-interest bearing balance that would be due and payable at the maturity of the mortgage loan, or the earlier payoff of the loan or transfer or sale of the property. Fannie Mae advises that the deferred balance would include up to 12 months for principal and interest 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. Freddie Mac advises that the deferred balance would include up to 12 months of principal and interest payments, and the expenses and amounts due that are permitted to be capitalized under the Flex Modification capitalization rules described in section 9206.15 of the Freddie Mac Seller/Servicer Guide. All other terms of the mortgage loan would remain unchanged.
Borrower and loan eligibility factors regarding the payment deferral include:
- The borrower had experienced a financial hardship result from COVID-19 that affected their ability to make monthly mortgage loan payments, and the hardship was resolved.
- The mortgage loan was current or no more than 31 days delinquent as of March 1, 2020.
- The mortgage loan is at least 31 days delinquent but no more than 360 days delinquent as of the date of the evaluation.
- The loan must be a conventional first lien loan, and may have fixed, step or adjustable interest rate.
- The property may be vacant or condemned, and Freddie Mac expressly indicates that the home may be a primary or secondary home, or an investment property.
The guidance addresses the requirement to establish a quality right party contact with the borrower, and to solicit the borrower for a payment deferral. Servicers may not require a complete borrower response package if the eligibility criteria are satisfied, and no trial period will be required. No processing or administrative fees may be imposed on a borrower to implement a COVID-19 payment deferral.
The Fannie Mae Lender Letter and Freddie Mac Bulletin, along with Attachments to the Bulletin that can be accessed here, provide further details on the COVID-19 payment deferral. They also provide details on other loss mitigation options that must be considered if the borrower does not qualify for a COVID-19 payment deferral.
Fannie Mae and Freddie Mac will announce the servicer incentive for a COVID-19 payment deferral in the future.
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