Despite what many homeowners have heard, there won’t be any lump sum payments due once a forbearance … [+]
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Despite what many homeowners may have heard, there won’t be any balloon or lump sum payments due once a mortgage forbearance period ends—at least if the loan is owned by Fannie Mae or Freddie Mac.
The two government-sponsored enterprises released announcements clarifying that fact this morning—an especially important move as homeowner confusion has mounted in recent weeks, thanks to unclear messaging from servicers across the nation.
Here’s the gist of it all: More than 3 million American homeowners have filed for forbearance since mid-March, pausing their mortgage payments for as much as 360 days.
What would happen after those 360 days, though? That’s where things were shaky.
According to many homeowners, some were told they could “reevaluate” their payment options after a few months. Others heard they’d owe their full deferred amount all at once—easily a $10,000-plus bill for most.
But Fannie and Freddie are now clearing the air: If a loan is owned by either of the GSEs, a lump sum payment just isn’t in the cards.
“Simply put, if you are a homeowner seeking forbearance, and Freddie Mac owns your loan, you are never required to make up missed payments in a lump sum,” says Freddie Mac CEO David Brickman. “Our policies offer a number of options to bring borrowers current, including repayment plans, resuming normal payments or lowering your monthly payment through a modification. We encourage homeowners facing hardship to work with their servicer to identify the plan that’s appropriate for their unique situation.”
Fannie Mae’s CEO Hugh Frater mirrored this sentiment, insisting that lump sum payments are never required and are only an option if the homeowner prefers it.
Instead, Fannie and Freddie loan holders can get on a repayment plan, which allows them to gradually repay the missed payments month over month; defer the payments, adding them to the end of their loan term; or modify their loan, changing their terms and monthly payments entirely.
Greg McBride, chief financial analyst at Bankrate, says borrowers who enter forbearance should start planning early for how they’ll proceed.
“Homeowners should be thinking downstream for when the forbearance period ends,” McBridge says. “Lenders can offer loan modifications if your income will be lower—for example if the new job pays less than the old one. Don’t be afraid to ask for this rather than trying to swallow a monthly payment that no longer fits into your ‘new normal’ income.”
Homeowners should hear from their mortgage services about 30 days before their initial forbearance plan is scheduled to end to discuss their options.
To see if your mortgage loan is owned by on the GSEs, use the loan look-up tools for Fannie Mae loan and Freddie Mac.