Fannie Mae Extends Forbearances for Troubled Borrowers

Fannie Mae, looking to both limit its own losses and help troubled borrowers stay in their homes, said Monday that it had bumped up the maximum forbearance term to 6 months for loans within Fannie-backed MBS pools. The previous limit had been 4 months, it said. Forbearances involve a lender/servicer voluntarily agreeing to postpone a borrower’s mortgage payments for some period of time, usually due to transient financial hardship, and are a common tool in loss mitigation for mortgage servicers. Borrowers usually remain responsible for any interest accrued during the forbearance period, and must provide sufficient documentation to qualify. The move likely signals a realization by Fannie Mae officials that borrowers are facing an extended period of strain, even among borrowers that represent a good enough credit risk to qualify for a forbearance. Either that, or Fannie is seeing a large number of forebearance plans lead to default. In a lender memo, senior vice president Michael Quinn said that the new policy will go into effect for servicers on April 11. Fannie Mae, along with sister GSE Freddie Mac, has seen delinquencies continue to rise as more borrowers find it difficult to handle their mortgage payments. Severe delinquences ratcheted up to 1.06 percent of loans outstanding during January, up 8 basis points from December and 40 basis points from one year ago. That number is the highest since the GSE began reporting delinquency numbers in 1997. For more information, visit http://www.fanniemae.com.