Fannie Mae clarifies mortgage rules for long-term delinquencies

Government-sponsored firm Fannie Mae this week released guidelines on timelines for proceedings related to questioning borrowers about post-forbearance disaster deferrals in circumstances where a loan has been in arrears since 12 months.

Among other things, the new guidelines released on Wednesday make it clear that when an agent solicits a borrower who has not paid for a year, the consumer must make a regular monthly payment based on the current written terms of the loan in good faith. Subsequently, the borrower can be assessed for a deferral in which his payments can be temporarily suspended and added at the end of the loan.

The guidance was important because the Consumer Financial Protection Bureau was concerned about the issue and wider confusion around mortgage service timessaid Jennifer Keys, senior vice president of compliance solutions for Covius.

“This clarification may help reduce the number of CFPB complaints regarding the timing and details of postponement eligibility,” Keys said in an email.

In addition to clarification on the payment, mortgage agents had asked for advice on when the deferral should be completed and if they could get more time to adjust to their month of processing, she said.

The guidelines say that the deferral should generally be made within the month the mortgage company solicits the defaulting borrower for one, and after receipt of payment from the borrower, but agents may be given some leeway for their month of treatment.

“Communication issues related to forbearance plans and options available at the end of those plans” was one of the common themes in the CFPB May complaint form.

“There is still work to be done to be really clear with borrowers. You can see that with the COVID-19 deferral plan, and now that we are in hurricane season, I think this will be relevant for disaster payment deferrals as well, ”Keys said in an interview.

Fannie’s advice will be helpful in this regard. The GSE guarantees the payments of the mortgages they buy from lenders after those loans are securitized and sold as securities to a large base of global investors, so it has strict rules on how to handle situations in which borrowers become delinquent. These rules are influential because the loans Fannie purchases represent a significant percentage of the mortgages sold in the United States.

Defaults typically start turning into foreclosures after 90 days, but with coronavirus-related difficulties on government-linked loans prolonged for more than a year, lengthy payment suspensions are increasingly possible. At the same time, the risk of natural disaster has increasedSo it’s possible that a borrower may have completed a pandemic-related forbearance plan, be back on track to pay, and then be hit by a weather-related issue like a hurricane. Additionally, deferrals are a relatively new option for defaulting borrowers, so it was necessary to develop more guidelines on them.

While there has been some recovery in the number of long-term failures due to government aid and a vaccine rollout that has allowed the economy to open up, they remain historically high.

In the first quarter, 4.7% of all mortgages were 90 days or more overdue, down 33 basis points from a year ago, according to the Mortgage Bankers Association‘s national survey of its members. However, that first quarter 2020 figure was up more than 3% or 303 basis points from the first quarter of last year.

The serious delinquency rate has not been so high since the second quarter of 2010, when it was 4.82%. Serious defaults peaked in the first quarter of this year at just over 5%.

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