FHFA broadening use of expanded payment deferrals

The Federal Housing Finance Agency is extending an option used by borrowers with pandemic hardships to other distressed homeowners who have loans backed by government-sponsored enterprises Fannie Mae and Freddie Mac.

"The Enterprises completed more than 1 million COVID-19 payment deferrals during the pandemic, helping borrowers nationwide to stay in their homes," FHFA Director Sandra Thompson said in a press release. "Based on the success of the COVID-19 payment deferral, we are making this solution a key part of our standard loss mitigation toolkit that is available to all borrowers with eligible hardships."

The expanded deferrals, which allowed borrowers who temporarily suspended their monthly obligations amid the national emergency to repay forborne amounts later, are being made available more broadly for up to six months worth of payments.

Borrowers won't pay any interest on the deferred obligations. Deferred amounts will be due and payable when the loan matures, the collateral property gets sold, or if the borrower refinances or pays off the mortgage.

The expanded deferrals will be available for broader use by servicers on a voluntary basis starting on July 1 and will become mandatory for in situations where it's appropriate for borrowers beginning Oct. 1.

The GSEs will continue to also offer a broader set of options to borrowers with hardships, depending on their needs. Some may be able to reinstate loans after temporary hardships end, others might be able to make-up missed amounts with a repayment plan, and those with long-term income reductions might be able to obtain a modification of their loan terms that makes it more affordable if they meet certain requirements.

Deferrals are one of a number of temporary foreclosure-prevention strategies used by government-related agencies during the pandemic that entities like the Mortgage Bankers Association and the Urban Institute's Housing Finance Policy Center have suggested be adopted on a permanent basis based on their high usage rate by borrowers during the national emergency.

"The payment deferral for the GSEs was used 30% of the time," said Justin Wiseman, vice president and managing regulatory counsel at the association, in a recent interview. The figure reflects the percentage of borrowers exiting forbearance who utilized a deferral, or an equivalent from another agency, between June 1, 2020 and year-end 2022.