So far, the principal policy response to the #COVID-19 pandemic in the U.S. #mortgage market has been #forbearance. On March 18, 2020, the Federal Housing Finance Agency directed Fannie Mae and Freddie Mac to suspend #foreclosures on single-family mortgages and start offering forbearance and modification plans to distressed borrowers The Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law on March 27, codified the Fannie Mae and Freddie Mac forbearance programs.
Mortgage forbearance means a mortgage lender allows a borrower to stop making mortgage payments for a fixed period of time. During that time, the lender does not charge late fees nor initiate foreclosure proceedings but does consider the borrower delinquent on the loan. Under normal circumstances, the lender would report the delinquency and the forbearance plan to credit bureaus. Under not-so-normal circumstances, including natural disasters, lenders often do not report loan status to credit bureaus.
The CARES Act explicitly stipulates that forbearance resulting from the COVID-19 pandemic cannot negatively affect a borrower’s credit score, so lenders cannot report borrowers in forbearance as being delinquent. Once the forbearance period expires, the borrower has to make up the missed payments. After the forbearance period ends, the borrower and lender would typically negotiate a repayment plan that makes the lender whole in the long run but does not send the borrower back into distress. Right now we are seeing most lenders offering to add the missed payments into bankruptcy repayment plans for those people already in bankruptcy.
For those consumers not in bankruptcy we are seeing most lenders either offering a loan modification and putting those amounts on the back end of the loan or adding a second loan on the property.
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