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Financial Services Law Insights and Observations

Fannie and Freddie offer new Covid-19 payment deferral

Federal Issues Covid-19 FHFA Fannie Mae Freddie Mac Forbearance Loan Modification Mortgages Consumer Finance FCRA CARES Act

Federal Issues

On May 13, the FHFA, Fannie Mae, and Freddie Mac, announced a new Covid-19 payment deferral option that will be available starting on July 1. According to Fannie Mae Lender Letter LL-2020-07 and Freddie Mac Bulletin 2020-15, the new Covid-19 payment deferral is “a new workout option specifically designed to help borrowers impacted by a hardship related to Covid-19 return their mortgage to a current status after up to 12 months of missed payments.”

The new option is for borrowers who (i) are on a Covid-19 related forbearance plan, or (ii) have a resolved financial hardship due to Covid-19. Specifically, the servicer is required to confirm that the borrower is now able to continue making the full monthly contractual payment of their loan but is unable to reinstate the mortgage loan or afford a repayment plan to cure the previous delinquency. If a borrower is eligible for the Covid-19 payment deferral, the servicer must allow the borrower to resume their contractual monthly payments; however, the delinquency amount (which includes up to 12 months of past-due 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) must be deferred as a non-interest bearing balance, due and payable at liquidation, refinance, or maturity. Among other requirements detailed by the Lender Letter and Bulletin, servicers must report the loan in accordance with the Fair Credit Reporting Act, as amended by the CARES Act, which requires lenders to report as current any loans subject to Covid-19 forbearance or other accommodation.  Additionally, servicers must waive all late charges, penalties, and fees upon completing the Covid-19 payment deferral.

In addition to the new Covid-19 payment deferral, borrowers will continue to have other hardship options including repayment plans, lump-sum repayment, or permanent modification. Servicers must begin evaluating borrowers for the Covid-19 payment deferral beginning July 1.  

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