Impact of COVID-19 on Servicing of Residential Mortgage Loans
March 20, 2020 – Legal AlertsIn the wake of the coronavirus pandemic and its effects on the economy, Fannie Mae has implemented emergency guidelines to assist borrowers who are facing financial uncertainty. At the direction of the Federal Housing Finance Agency (FHFA) along with Freddie Mac, Fannie Mae published the following temporary policies on March 18, 2020, for servicers to better assist borrowers impacted by COVID-19.
Forbearance Plan Eligibility
Servicers should evaluate borrowers who have experienced a hardship resulting from COVID-19 for a forbearance plan in accordance with the Fannie Mae Servicing Guide, Chapter D2-3.2-01 (Forbearance Plan). Hardships are defined as unemployment, reduction in regular work hours, or illness of a borrower/co-borrower or dependent family member impacting a borrower’s ability to make the regular monthly mortgage loan payment. The property securing the mortgage loan may be a principal residence, a second home, or an investment property.
The following changes to the eligibility criteria apply for these mortgage loan modifications.
Current Requirement |
The property securing the mortgage loan or the borrower’s place of employment must be located in a FEMA-declared disaster area for individual assistance eligibility. The mortgage loan must:
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Requirement for Borrowers Impacted by COVID 19 |
The borrower must have experienced a hardship resulting from COVID-19 which has impacted their ability to make their monthly mortgage loan payment. The mortgage loan must:
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Prior to offering a forbearance plan, servicers must achieve quality right party contact (QRPC) with the borrower. The servicer is not required to obtain documentation of the borrower’s hardship and must follow the requirements set forth in the Fannie Mae Servicing Guide, Chapter D2-3.2-01 (Forbearance Plan).
Evaluating the Borrower for a Mortgage Loan Modification After a Forbearance Plan
After a borrower has received a forbearance plan in response to COVID-19, servicers must take the following steps.
- Begin attempts to contact the borrower no later than 30 days prior to the expiration of the forbearance plan term.
- NOTE: Servicers must make appropriate changes to the Flex Modification Solicitation Cover Letter and Evaluation Notices, including the applicable Frequently Asked Questions, when using for a borrower impacted by COVID-19.
- Continue outreach attempts until either QRPC is achieved or the forbearance plan term has expired.
- Analyze each case carefully in accordance with the requirements in the table below before determining which mortgage loan modification is most appropriate for the borrower.
If the servicer is . . .(A) able to establish QRPC with the borrower during the forbearance plan |
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And... Determines the borrower is capable of maintaining the current contractual monthly principal, interests, taxes and insurance (PITI) payment, including any escrow amounts disbursed by the servicer during the forbearance plan term and escrow shortage needed to pay future escrow that is required to be repaid by the borrower over the 60-month escrow replacement period. |
Then the servicer must evaluate the borrower for . . . An Extend Mod, and if eligible, offer the borrower the Extend Mod. The servicer must disclose how the escrow analysis was determined, and that disbursed escrow amounts will not be capitalized but added to the escrow shortage needed to pay future escrow amounts resulting in an increase of the borrower’s current contractual monthly PITI payment over the 60-month escrow repayment period. |
Determines the borrower can maintain the current contractual monthly PITI payment but cannot manage the additional escrow repayment obligation to cover amounts disbursed by the servicer during the forbearance plan term. |
A Fannie Mae Cap and Extend Modification for Disaster Relief and if eligible, offer the borrower a Fannie Mae Cap and Extend Modification for Disaster Relief (Refer to Fannie Mae Servicing Guide, Chapter D2-3.2-05, Fannie Mae Cap and Extend Modification for Disaster Relief). |
| Determines the borrower is not capable of maintaining the current contractual monthly PITI payment. | Fannie Mae Flex Modification based on the Unique Requirements for a Borrower Impacted by a Disaster Event (Refer to Fannie Mae Servicing Guide, Chapter D2-3.2-06, Fannie Mae Flex Modification) and if eligible, offer a Fannie Mae Flex Modification. |
If the servicer is . . .(B) NOT able to establish QRPC during the forbearance plan |
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And... The mortgage loan is 90 or more days delinquent. |
Then the servicer must evaluate the borrower for . . . A Fannie Mae Flex Modification based on the Unique Requirements for a Borrower Impacted by a Disaster Event (Refer to Fannie Mae Servicing Guide, Chapter D2-3.2-06, Fannie Mae Flex Modification) and if eligible, solicit the borrower for a Fannie Mae Flex Modification. |
Credit Bureau Reporting
Even if payments are past due, as long as the delinquency is related to a hardship resulting from COVID-19, servicers must suspend reporting the status of a mortgage loan to credit bureaus during an active forbearance plan, repayment plan, or trial period plan when the borrower is making the required payments as agreed.
Suspension of Foreclosure Sales
Foreclosure sales are suspended the next 60 days. This foreclosure suspension does not apply to mortgage loans on properties that have been determined to be vacant or abandoned.
Additionally, while there may not be limitations on filing or other foreclosure-related activities (other than already existing under RESPA regulations), it is important to monitor what is happening across jurisdictions as various orders are being entered which may have an effect on foreclosures. For example, the tolling of statute of limitations and postponement of court functions.
We will continue to provide updates as the details are communicated. Please contact your Dinsmore attorney with any questions.