New Mortgage Relief Option Gives Struggling Borrowers A Massive Break – Forbes A

Homeowners struggling with their mortgages will get a powerful assist beginning July 1. A revamped policy from Fannie Mae and Freddie Mac will allow some people who have missed mortgage payments to qualify for deferment and avoid foreclosure.

Expanding their existing deferment rules, Fannie Mae and Freddie Mac will enable eligible borrowers to defer payment for two to six months at a time. The total amount of the missed payments will be tacked on to the end of the mortgage term.

A qualified borrower can miss a total of 12 months of payments overall. They just can’t miss payments for 12 months in a row.

In addition, a borrower who gets a deferment must wait at least 12 months to apply for another one. For example, if you miss your mortgage loan payment in January and get a deferment, you can’t get another deferment until at least the following January. This requirement is waived, however, if your previous deferments were due to COVID-19 or natural disasters.

In July, the deferment program will be a voluntary option for mortgage servicers, but it will become a mandatory option beginning on October 1, 2023.

What Is a Mortgage Deferment?

A mortgage deferment (also known as deferral) allows borrowers to move missed mortgage payments to the end of their loan. So, if your loan ends in five years, the total cost of the deferred payments would come due at that time. If you sell, transfer or refinance the property before that, then the unpaid balance would be due at the time of the transaction.

The new Fannie Mae and Freddie Mac rules allowing people who are behind on their mortgage payments to avoid late penalties and foreclosure through deferment are not entirely new.

Fannie and Freddie had previously offered deferment during COVID-19 when lockdowns put many people out of work. More than 1 million payment deferments were made by Fannie Mae and Freddie Mac during the pandemic.

“Based on the success of the COVID-19 payment deferment, we are making this solution a key part of our standard loss mitigation toolkit that is available to all borrowers with eligible hardships,” said FHFA director Sandra L. Thompson in a statement.

How Is a Deferment Different From Forbearance?

A mortgage forbearance allows borrowers to pause mortgage payments, while a deferment is focused on how to handle payments that have already been missed.

In some cases, a deferment would follow a forbearance plan. For instance, if you exit a forbearance plan and miss a couple of payments, you may still qualify for a deferment. However, you need not participate in a forbearance plan in order to get a deferment.

How To Qualify For Mortgage Deferment

If you missed a few mortgage payments but are now ready to resume paying your original monthly amount, you may qualify for a mortgage deferment. You may be eligible if your situation meets certain requirements:

• Your mortgage must be backed by Fannie Mae or Freddie Mac. If you’re unsure, you can either ask your servicer or contact Fannie and Freddie by email or phone. Fannie Mae’s phone number is 800-232-6643; Freddie Mac’s is 800-373-3343.
• Your mortgage must be a conventional first-lien mortgage loan. It may, however, be a fixed-rate, a step-rate or an adjustable-rate mortgage.
• You must have had your mortgage for at least a year.
• You must have missed more than one mortgage payment. You’ll need to be delinquent by at least 2 months but no more than 6 months, as of the date you get evaluated by your servicer.
• You need to have substantial time left on your mortgage. The loan can’t be within 36 months of its maturity or projected payoff date.
• You need to show that you’ll be able to pay the mortgage going forward. The servicer must be satisfied that whatever hardship caused you to miss payments has been resolved, enabling you to resume your regular mortgage payments.

In most cases, you won’t have to prove that you were experiencing financial hardship that caused you to get behind on payments.

Repaying Your Paused Payments

If you decide to get a mortgage deferment, there is one critical thing to plan for: The unpaid balance from the skipped payments will come due as a one-time balloon payment later.

The deferred balance doesn’t accrue interest, though you’ll still pay interest on your regular interest-bearing balance.

It’s wise to begin planning for this lump-sum bill as soon as possible. Come up with a budget that makes sense for you so you’re ready when the bill arrives.

Be Proactive if You Miss Mortgage Payments

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