Loan servicers’ pandemic-relief efforts ‘a major success story’

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Loan servicers collecting mortgage payments on loans backed by Fannie Mae and Freddie Mac kept millions of borrowers from being foreclosed on during the coronavirus pandemic, a report released Friday by the mortgage giants’ federal regulator shows.

Unlike the 2007-09 housing bust and Great Recession — when loan modifications, repayment plans and short sales were the primary tools for helping distressed borrowers avoid foreclosure — millions of homeowners were offered more generous forbearance and payment deferrals during the pandemic.

From 2020 through March 2023, loan servicers collecting payments on loans guaranteed by Fannie and Freddie completed 2.36 million “home retention actions,” the Federal Housing Finance Agency (FHFA) reported.

Fannie Mae and Freddie Mac home retention actions

Source: Federal Housing Finance Agency

That includes 956,000 homeowners who were offered forbearance and 1.1 million who received payment deferrals in which past-due amounts don’t have to be repaid until the end of the loan’s term, or the property is sold or refinanced.

FHFA did find that home retention actions were up 11 percent during the first three months of 2023, to 58,120, putting an end to nine straight quarters of declines.

But in another report out Friday, mortgage and property data aggregator Black Knight announced that the national delinquency rate fell to 3.10 percent in May, the second lowest it’s ever been. Delinquencies hit an all-time low of 2.92 percent in March.

Home retention actions:

  • Repayment plan: An agreement between the loan servicer and borrower allowing the borrower to make regular monthly payments plus an additional agreed-upon amount to repay a delinquency in a defined period of time.
  • Forbearance: An agreement allowing the borrower to reduce or suspend monthly payments. When they resume regular monthly payments, they must either pay an additional amount to bring the account current or find another solution like a loan modification or short sale.
  • Charge-off-in-lieu of foreclosure: When foreclosing on a loan isn’t in Fannie or Freddie’s best interest because of reduced property value, a low outstanding mortgage balance or presence of environmental hazards, loan servicers are authorized to charge off the mortgage debt with the borrower retaining title to the property. The unpaid mortgage balance becomes a lien on the property that must be paid off when it’s eventually sold.
  • Loan modification: The terms of the contract between the borrower and the lender, such as the loan term or interest rate, are altered with the aim of curing the delinquency.
  • Payment deferral: A workout option that defers past-due principal and interest payments as a non-interest-bearing balance payable at the end of the loan term or the refinancing or sale of the property.

Soaring home prices during the pandemic also helped borrowers avoid short sales and deeds-in-lieu of foreclosure, which totaled less than 7,000 among loans backed by Fannie and Freddie.

While rising home values and borrower relief programs helped keep borrowers out of foreclosure during the pandemic, most FHA borrowers weren’t provided with the correct assistance after their forbearance ran out, the U.S. Department of Housing and Urban Development’s Office of Inspector General (HUD OIG) concluded in a report published last week.

The Mortgage Bankers Association said the HUD OIG report highlighted difficulties HUD faced “in effectively communicating extensive and rapidly changing COVID-related loss mitigation program requirements” to loan servicers.

Bob Broeksmit

“Since the pandemic began in March 2020, mortgage servicers provided payment relief to nearly 8 million borrowers via forbearance,” MBA President Bob Broeksmit said in a statement. “Today, only approximately 255,000 borrowers remain in forbearance, and delinquency rates are near historic lows.”

Loan servicer Mr. Cooper, which was the focus of another HUD OIG audit, said the report focused on findings that were often “very technical in nature” rather than on borrower outcomes.

Broeksmit offered a similar assessment.

“A number of the technical faults that the report identifies were made by servicers in the spirit of helping COVID-affected borrowers exit forbearance and remain in their homes in the fastest, most efficient way possible,” Broeksmit said. “Others were the unfortunate outcome of confusing or conflicting program requirements and the inherent difficulties of quickly scaling such a massive borrower assistance effort.

“But make no mistake, by focusing on delivering positive outcomes for homeowners, servicers’ implementation of COVID-19 relief is a major success story.”

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