Government-sponsored Fannie Mae released guidance this week on the timelines for procedures related to asking borrowers for deferred payments after forbearance disasters in cases where a loan has been in default for 12 months.
The new guidelines issued on Wednesday make it clear, among other things, that if the consumer recruits a borrower who has not paid in a year, they must make a regular monthly payment based on the current written credit terms in good faith. After that, the borrower can be checked for a deferral in which his payments are temporarily suspended and pinned to the end of the loan.
The guidance was important as the Consumer Financial Protection Bureau raised concerns about the issue and increased confusion about mortgage servicing deadlines, said Jennifer Keys, senior vice president of Compliance Solutions at Covius.
"This clarification can help reduce the number of CFPB complaints regarding the timing and details of eligibility for a postponement," Keys said in an email.
In addition to clarifying the payment, mortgage servants had asked for guidance on when the forbearance needs to be completed and whether they could be given extra time to deal with their month of processing, she said.
The policy states that the forbearance must generally be completed within the month that the mortgage company seeks a loan from the defaulting borrower and after receiving payment from the borrower, but service providers may be given some margin in their month of processing.
"Communication issues related to moratorium plans and options available at the end of those plans" was one of the common themes in the CFPB's May complaint bulletin.
“There is still a lot to be done if it comes to being really clear with borrowers. You can see this on the COVID-19 deferral plan, and now that we are in hurricane season, I think this will be relevant for deferring disaster payments as well, ”Keys said in an interview.
Fannie's guidance will help with this. The GSE guarantees payments on mortgages that they buy from lenders after those loans have been securitized and sold as securities to a large global investor base. Hence, there are some strict rules in place for dealing with situations where borrowers are in default. These rules are influential because the loans Fannie buys make up a large percentage of the mortgages sold in the United States.
Defaults usually start converting to foreclosures after 90 days, but with the forbearance of coronavirus-related hardships, government-related loans that have been extended for more than a year are increasingly subject to prolonged suspension periods. At the same time, the risk of natural disasters has increased, so it is possible that a borrower could have completed a pandemic-induced deferral plan, get back on track, and then be hit by a weather-related problem like a hurricane. Also, deferrals are a relatively new option for defaulting borrowers, so more guidelines needed to be developed.
Although longer-term default numbers have rebounded somewhat due to government aid and a vaccine roll-out that allowed the economy to open up, they remain historically high.
According to the Mortgage Bankers Association's national membership survey, 4.7% of all mortgages were 90 or more days late in the first quarter, 33 basis points less than the previous fiscal year. However, that number for the first quarter of 2020 was more than 3%, or 303 basis points, higher than the first quarter of last year.
Since the second quarter of 2010, at 4.82%, the rate of serious payment defaults is no longer that high. Serious payment defaults peaked at just over 5% in the first quarter of this year.