Throughout the pandemic, forbearance plans played an important role in providing mortgage relief to homeowners as they faced challenges related to COVID-19 impacting their finances. These include job loss, declining income and illness. But what should owners do after the forbearance ends? A new home retention solution, COVID-19 deferral of payment, was introduced early in the pandemic to strengthen the loss mitigation toolbox. This program was designed to meet the needs of homeowners who have resolved their struggles but can afford to resume payments before the pandemic.
Total COVID-19-related forbearance on mortgages held by Freddie Mac has reached nearly 800,000, and 76% of homeowners who started COVID-19-related forbearance have since been out. Just over 38% of those who left a forbearance plan received a payment deferral as a solution to their default. However, of the remaining active abstentions, almost half are set to expire in the fall and those homeowners will need a solution. While repaying missed payments immediately after forbearing is the best option to avoid having a lump sum included in the final payment, the truth is, most homeowners can’t afford to do it – that is. the reason why the deferral was created and works so well.
“No one in the mortgage industry or in the value chain benefits from uncertainty and disruption,” said Mike Zarro, executive vice president of mortgage services at Truist, on the “Home Starts Here” podcast. “What the COVID-19 payment deferral has allowed us to do is provide certainty to a large group of homeowners very quickly. “
Simple for owners
- Updates the mortgage immediately
- Maintains the same monthly payment of principal and interest
- The deferred amount does not bear interest
- The loan term (number of years) does not extend
A homeowner who was past due or past due for up to 60 days at the start of the COVID-19 pandemic may be eligible for a COVID-19 payment deferral. It allows them to continue to make the same mortgage payments as before the forbearance by deferring the overdue principal and interest amounts, without increasing the cumulative interest payments, without extending the term of the mortgage or the number of installments. Basically, the interest owed on the remainder of the loan would be the same whether the owner reinstated or took a deferral. Overall, deferral is easier for the homeowner to understand and more affordable than the other options available.
Simple for repairers
- Fewer eligibility conditions
- Minimum documentation required from owner, if applicable
- Operationally easy to implement as the monthly payment, interest rate and mortgage maturity date do not change
As we enter a post-pandemic world, Freddie Mac is focused on supporting the housing sector with innovative programs and tools to advance sustainable homeownership. One tool that will speed mortgage resolution for service providers (and homeowners) is Resolve, an integrated default management platform. A service agent can send training requests such as COVID-19 payment deferral to resolve through an application programming interface (API) solution, which returns eligibility decisions and instant data for each ready. Direct integration via the API results in a faster response to the owner on post-forbearance options.
Simple for the investor
- Reduces potential credit losses
- Closes a gap between reimbursement and a modification
- Does not increase MBS prepayment speeds
Succeed in times of need
“We will continue to see the need for a postponement decision,” said Bob Hora, SVP, Default Operations at Cenlar, during a “Home Starts Here” podcast. “This continued expansion of processing allows us to streamline our processes through automation. The decision to defer payment – this is a wonderful and streamlined option for homeowners. It also provides a means for maintenance departments to deal in an automated manner.
When faced with an unforeseen crisis, homeowners need smart, reliable mortgage relief solutions so they can stay in their home and avoid foreclosure. With many 18-month abstentions coming to an end, deferral of payment will emerge as a flagship program to resolve COVID-19-related defaults. Deferral of payment has proven to be an effective solution after forbearance from sustainable home ownership during the pandemic.