Since the coronavirus pandemic began earlier this year, the housing ecosystem has been overwhelmed by the influx of forbearances in response to stay-at-home orders and unemployment rates.
The number of homeowners seeking information on relief skyrocketed. According to MBA’s Weekly Call Volume Survey, the average number of calls into Servicer businesses rose drastically, causing wait times to spike in a two-week period. In response, servicers, homeowners and the GSEs were forced to abruptly shift gears and change the way they do business.
New and compelling circumstances call for new protocols and quick policy changes. To respond effectively to these challenges, housing professionals have united like never before to educate homeowners on forbearance, listen to their needs and help them solve the unique hardships brought on by COVID-19.
As an industry, it’s critical that we anticipate the next wave of homeowner education and support that will be needed as we start to see businesses reopen and employment rates decline, resulting in forbearance plans coming to an end. Despite the uncertainty that has become our reality, one thing is for sure: homeowners have options when their forbearance plans conclude.
According to a recent report, forbearance volumes have generally trended downward over the past few weeks and homeowners are transitioning out of forbearance plans. We must unite again to educate them about their options, whether it’s a reinstatement or repayment plan, payment deferral or loan modification.
Here’s an example of what a hardship situation might look like for a homeowner who went on a forbearance plan after losing their job in March when their place of work closed temporarily. The business reopened in June and the homeowner was reemployed. If the homeowner is able and willing to make up those three months of missed payments, the following two options can help them regain “current” status on their mortgage:
Reinstatement:
Reinstatement allows the homeowner to catch up on all the missed payments at once in a single lump-sum payment, bringing the mortgage to current status.
Repayment Plan:
Repayment plans provide for the homeowner to pay regular monthly payments plus an additional agreed-upon amount in repayment of the past due amount for a period of time (e.g., three, six, nine or up to 12 months).
In that same scenario, if the homeowner can only afford to resume their prior mortgage payment (pre-forbearance) but cannot catch up on the payments even after reemployment, there’s a new option:
Payment Deferral:
Payment deferral solutions provide homeowners with a more affordable option where the deferred delinquent amounts create a non-interest-bearing forborne balance that will become due later (i.e., mortgage maturity date, payoff, refinance, etc.).
There are three solutions depending on the nature of the homeowner’s hardship: the standard payment deferral, COVID-19 payment deferral and disaster payment deferral. The COVID-19 payment deferral was specifically designed to support homeowners during the pandemic and offers up to 12 months of deferred payments.
We expect most homeowners facing a COVID-19 related hardship will take advantage of it when possible. Due to its favorable nature compared to other offerings, as well as its ability to give a large group of homeowners more certainty very quickly, payment deferral has been extremely well-received by servicers and homeowners.
We’ve seen over 38,000 payment deferrals submitted in just the first two weeks since the initiative launched on July 13, 2020. This means the program was easy to understand, met the needs of borrowers and was quick for servicers to implement right out of the gate.
“This program sets up servicers and clients alike to be able to perform at a scalable level,” Mike Zarro, servicing executive for Truist shared with Freddie Mac in a recent podcast on payment deferral. “We’re working with our technology teams to create self-service capabilities, and this product is designed especially for that. It’s easy from the standpoint of validation, limited documentation – no documentation in really all cases, no signatures required unless required by the servicer.”
Following up on the earlier scenario, what if the homeowner also encountered unexpected financial challenges during unemployment where they could no longer resume their prior mortgage payment (pre-forbearance), and therefore require additional payment relief? There’s an option for that, too.
Loan Modification:
A modification restructures the mortgage to make it more affordable and sustainable. Common loan modifications include reducing the monthly payment amount, turning an adjustable-rate mortgage into a fixed-rate mortgage, or extending the number of years to repay the loan.
#HelpStartsHere with Freddie Mac
Education is the foundation to positive change. Resources like our servicer eBook equip servicers with the right information so you can more easily support homeowners. Likewise, homeowners can educate themselves by reviewing our Interactive Guide so they feel more confident when talking to servicers about their decisions and the options available to them.
