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Freddie Mac and COVID-19 

by Wesley A. Shumway

Published: May, 2020

Submission: May, 2020

 



Freddie Mac has taken a series of steps to assist its borrowers, sellers, and servicers during these unprecedented times, and should help Freddie Mac continue its goal to “keep mortgage money flowing, support the stability of the housing market, and promote housing affordability.”
 
Freddie Mac announces avenues of assistance to borrowers affected by COVID-19, and that borrowers in forbearance will not be required to repay in a single lump sum.

Freddie Mac has announced a series of relief avenues in an effort to help ensure “homeowners with Freddie Mac-owned mortgages who are directly or indirectly impacted by COVID–19” can stay in their houses during this emergency. Specifically, Freddie Mac has listed the following relief for borrowers: 
  1. Providing mortgage forbearance for up to 12 months,
  2. Waiving assessments of penalties and late fees,
  3. Halting all foreclosure actions and evictions of borrowers living in Freddie Mac-owned homes until at least May 17, 2020, and
  4. Offering loan modification options that lower payments or keep payments the same after the forbearance period.

More information regarding Freddie Mac’s COVID-19 response can be found here.
 
Freddie Mac also announced on April 27, 2020, that homeowners in forbearance will not be required to repay missed payments in a single lump sum. The announcement reiterated that owners who face hardship can seek up to 12 months of forbearance. The announcement explains that once the hardship resolves, the following four options will be available in order to facilitate borrower repayment:
  • Full repayment (restatement), where the borrower repays the missed payments and the loan is put back on track;
  • Repayment plan, which allows regular monthly payments, plus additional amounts to gradually catch up on the missed payments not made due to the forbearance;
  • Payment deferral or modification, in which the borrower will make the same monthly payments, and the missed payments will be added to the end of the mortgage loan, extending the maturity date by the number of months of the forbearance;
  • Modification of the loan.

Servicers of loans, according to Freddie Mac, will contact borrowers roughly 30 days before the forbearance plan is set to end “to determine which assistance program is best or if additional forbearance is needed.” Thus, Freddie Mac has been active in providing relief to borrowers who face hardship due to COVID-19.
 
Freddie Mac provides further guidance to sellers and servicers, including Bulletin 2020-12.

Freddie Mac also provided its sellers and servicers with announcements and guidance to assist during the COVID-19 pandemic. 

Importantly, on April 22, 2020, Freddie Mac issued Freddie Mac Single-Family Bulletin 2020-12 (the “Bulletin”) to Freddie Mac sellers. The Bulletin addresses temporary eligibility for the sale of mortgages that are in COVID-19 related forbearance. While mortgages in forbearance generally are ineligible for sale to Freddie Mac, Freddie Mac is “implementing []temporary eligibility requirements due to the impact of COVID-19 on our Sellers and their Borrowers,” in an effort to keep providing necessary liquidity to the United States mortgage loan industry. The Bulletin explains the temporary requirements “are effective for Mortgages with Note Dates on or after February 1, 2020, and on or before May 31, 2020, and Settlement Dates on or after May 1, 2020.” The Bulletin clarifies that the Note Date within the Bulletin means “the modification date for Seller-Owned Modified Mortgages, the Conversion Date for Seller-Owned Converted Mortgages, the Effective Date of Permanent Financing for Construction Conversion and Renovation Mortgages, or the assumption agreement date, as applicable.” Additional details regarding effective date requirements, which differ depending on the contract type, can be found in the Bulletin here.

The Bulletin lists the eligibility requirements “to allow Sellers to deliver certain Mortgages in forbearance that would not otherwise be eligible for sale under the Guide.”  Delivery will be allowed for mortgages where the borrower:
  • Requested forbearance and attested to or otherwise informed the Seller or Servicer that, after the Note Date, he or she suffered financial hardship caused directly or indirectly by COVID-19, or
  • Was approved for a forbearance plan based on a COVID-19 related financial hardship that occurred after the Note Date.

However, the above-described mortgages are subject to the following limitations:
  1. Each mortgage must be no more than 30 days delinquent (as described in further detail in the Bulletin), and
  2. Each mortgage must be a purchase transaction mortgage, or a “no cash-out” refinance mortgage. 

The Bulletin also makes clear that a borrower inquiry about forbearance, absent an actual request for forbearance, will not render the mortgage in forbearance.  

The Bulletin also announces that sellers of the mortgages should not “discourage Borrowers from contacting them or encourage Borrowers to delay notifying them either before or after the Note Date if they are experiencing a COVID-19 related financial hardship.” 

Additionally, mortgages under this scheme are subject to Credit Fees in Price, which are listed in the Bulletin as 5 percent for first-time homebuyers and 7 percent for non-first time homebuyers. Full details on these Credit Fees in Price can be found within the Bulletin. For complete details regarding temporary selling requirements for mortgages in COVID-19 related forbearance, please read the Bulletin carefully, available here.
 
Freddie Mac has provided additional guidance for sellers and servicers, including, but not limited to, COVID-19 Selling-related Frequently Asked Questions, (f) as well as a COVID-19 Script for Servicer Use with Homeowners, General information regarding Freddie Mac’s COVID-19 response can be found here
 
Conclusion

Freddie Mac is taking active steps to assist and provide guidance to its borrowers, lenders, and servicers in these difficult times. Time will tell whether these measures are sufficient in order to continue Freddie Mac’s goal to “keep mortgage money flowing, support the stability of the housing market, and promote housing affordability.” 

If you have any questions, please contact our COVID-19 Task Force.


 
 
 

 



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