Second wave: Mortgage lenders face more chaos after forbearance ends

Fannie Mae, Freddie Mac working on plan to alleviate repayment confusion

National /
Apr.April 28, 2020 10:30 AM
Mortgage servicers have faced an avalanche of forbearance requests in recent weeks, but the real chaos could be six months down the line, when borrowers start trying to resume payments. (Credit: iStock)

Mortgage servicers have faced an avalanche of forbearance requests in recent weeks, but the real chaos could be six months down the line, when borrowers start trying to resume payments. (Credit: iStock)

As requests for mortgage forbearance ballooned in April, mortgage servicers — and their call centers — experienced an avalanche of inquiries. But that might be the easy part.

The real chaos could be six months down the road when homeowners try to resume payments, Bloomberg reported. Confusion around repayment policy could lead to piles of paperwork, serious delays, and even foreclosures.

Sources told the publication that Fannie Mae, Freddie Mac and the Federal Housing Finance Agency are working on a program to alleviate those problems. The agencies declined to comment on plans, but Obama administration senior housing adviser Michael Stegman said Americans should “expect even more chaos when forbearance ends” unless drastic changes are made.

During the 2008 crisis, borrowers seeking forbearance were required to provide documentation up front, which led to delays and confusion. Homeowners were able to avoid such issues this time around because they only had to say they were experiencing hardship.

While some lenders have told borrowers that back payments will be due as a lump sum after the forbearance period — which some sources suspect is a ploy to discourage forbearance requests — the Federal Housing Administration says it will treat missed payments as a second lien on the property to be paid off later.

Fannie and Freddie have said borrowers may pay back the forbearance over 12 months. If they are unable to do so, borrowers will need to apply for loan modifications that sources said could lead to 2008-style processing delays.

Mortgage Bankers Association CEO Bob Broeksmit said he expects Fannie and Freddie to announce a new repayment option in the next two weeks. “Hopefully this new option will not be overly complex and can work for a lot of borrowers,” he said. [Bloomberg] — Kevin Sun


Related Articles

arrow_forward_ios
(iStock/Illustration by Alexis Manrodt for The Real Deal)
Manhattan job losses in Q3 worst of any large county in the US
Manhattan job losses in Q3 worst of any large county in the US
Jerome Powell (Getty)
Powell sees new opportunity to reform low-income lending rule
Powell sees new opportunity to reform low-income lending rule
R&B Realty's Aron Rosenberg and Maverick's David Aviram of Maverick with 28 West 36th Street and 32 West 39th Street (Google Maps)
Midtown landlord sues to stop foreclosure by Maverick
Midtown landlord sues to stop foreclosure by Maverick
HSBC COO John Hinshaw (Getty, iStock)
HSBC to shrink its office footprint amid shift to WFH
HSBC to shrink its office footprint amid shift to WFH
(iStock/Illustration by Alexis Manrodt for The Real Deal)
US home prices are more than 5% too high: Fitch
US home prices are more than 5% too high: Fitch
The Texas snow storm was partly responsible for the decline in mortgage applications. (Getty)
Texas storm, increasing rates freeze home mortgage market
Texas storm, increasing rates freeze home mortgage market
New Yorkers can enjoy going to the movies again on March 5. (iStock)
Showtime: NYC movie theaters to reopen
Showtime: NYC movie theaters to reopen
666 Greenwich Avenue and David Koraca (Photo via StreetEasy, Goldman Sachs, Facebook)
Convicted fraudster illegally occupied posh West Village rental: lawsuit
Convicted fraudster illegally occupied posh West Village rental: lawsuit
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...