As requests for mortgage forbearance ballooned in April, mortgage servicers — and their call centers — experienced an avalanche of inquiries. But that might be the easy part.
The real chaos could be six months down the road when homeowners try to resume payments, Bloomberg reported. Confusion around repayment policy could lead to piles of paperwork, serious delays, and even foreclosures.
Sources told the publication that Fannie Mae, Freddie Mac and the Federal Housing Finance Agency are working on a program to alleviate those problems. The agencies declined to comment on plans, but Obama administration senior housing adviser Michael Stegman said Americans should “expect even more chaos when forbearance ends” unless drastic changes are made.
During the 2008 crisis, borrowers seeking forbearance were required to provide documentation up front, which led to delays and confusion. Homeowners were able to avoid such issues this time around because they only had to say they were experiencing hardship.
While some lenders have told borrowers that back payments will be due as a lump sum after the forbearance period — which some sources suspect is a ploy to discourage forbearance requests — the Federal Housing Administration says it will treat missed payments as a second lien on the property to be paid off later.
Fannie and Freddie have said borrowers may pay back the forbearance over 12 months. If they are unable to do so, borrowers will need to apply for loan modifications that sources said could lead to 2008-style processing delays.
Mortgage Bankers Association CEO Bob Broeksmit said he expects Fannie and Freddie to announce a new repayment option in the next two weeks. “Hopefully this new option will not be overly complex and can work for a lot of borrowers,” he said. [Bloomberg] — Kevin Sun