Homeowners impacted by the coronavirus pandemic can continue to breathe more easily, at least through the spring, thanks to the Federal Housing Finance Agency (FHFA). The agency announced February 9 that it would extend foreclose and real estate owned (REO) eviction moratoriums, as well as the COVID-19 forbearance period. The current moratorium, which was set to expire on February 28, 2021, has now been extended to March 31.
FHFA Director Mark Calabria stated: “To keep families in their home during the pandemic, FHFA is allowing borrowers to be in COVID-19 forbearance for up to 15 months and extending the Enterprises’ foreclosure and eviction extension.”
FHFA is a “world-class independent regulatory Agency that ensures a competitive, liquid, efficient, and resilient (CLEAR) housing finance market.” It is responsible for regulating the “Enterprises”: Fannie Mae, Freddie Mac, and 11 Federal Home Loan Banks. These government-sponsored organizations provide more than $6.7 trillion in funding for U.S. mortgage markets and financial institutions.
What does this mean for U.S. homeowners?
The pandemic has had a devastating impact on the nation’s economy, including millions of homeowners who have been struggling to make house payments. However, thanks to specific national and state moratoriums, many have been – and will continue to be – protected from eviction. FHFA’s most recent announcement impacts specific groups of people:
- Single-family homeowners with a mortgage backed by Fannie Mae or Freddie Mac, and
- Tenants of properties that have been acquired by an Enterprise through foreclosure or deed-in-lieu of foreclosure transactions.
To appreciate the importance of this announcement, one needs to understand how foreclosure works. Foreclosure is the process used by lenders to take back a property when a homeowner fails to pay the required mortgage – the foreclosure process differs from one state to another. However, under federal law, a servicer generally cannot start the state foreclosure process until a homeowner’s loan is more than 120 days past due. Exceptions may apply depending on a homeowner’s forbearance or other relief (often called “loss mitigation”) programs.
A foreclosure moratorium, on the other hand, suspends or stops the foreclosure process, thus providing relief to pandemic-stricken homeowners.
The recent foreclosure moratorium enacted by FHFA applies to Enterprise-backed, single-family mortgages.
Extension on Real Estate Owned Evictions
Real estate owned (REO) properties are acquired by a bank either at a foreclosure sale or as the result of a deed-in-lieu of foreclosure. If an REO property is still occupied at the time of acquisition, the bank is responsible for evicting the tenant or homeowner.
FHFA’s recent extension has placed a moratorium on REO evictions for properties acquired by an Enterprise through foreclosure or deed-in-lieu of foreclosure transactions. Tenants and homeowners can continue to remain in their homes without fear of immediate eviction.
Furthermore, if the loan is backed by HUD/FHA, USDA, or VA, the lender or loan servicer cannot foreclose on a homeowner until after June 30, 2021. Guidance from Fannie Mae and Freddie Mac for these types of mortgages prohibits lenders and servicers from beginning a judicial or non-judicial foreclosure against a homeowner or from finalizing a foreclosure judgment or sale.
More good news: FHFA also announced that borrowers with a mortgage backed by Fannie Mae or Freddie Mac may be eligible for an additional forbearance extension of up to three months. Qualifiers may be allowed to pause or reduce their mortgage payments for a limited time while they build back their financial position. They will not have their payments or debt forgiven or erased but instead postponed according to an agreed upon timeline.
According to an FHFA press release, “Eligibility for the extension is limited to borrowers who are on a COVID-19 forbearance plan as of February 28, 2021, and other limits may apply.”
In addition, those with mortgages backed by HUD/FHA, USDA, or VA may request up to two additional 3-month extensions or a maximum of 18 months of total forbearance. To qualify, applicants must have started a forbearance plan on or before June 30, 2020, and not all borrowers will qualify for the maximum.
COVID-19 Payment Deferral
Furthermore, FHFA announced that a “COVID-19 Payment Deferral for borrowers with an Enterprise-backed mortgage can now cover up to 15 months of missed payments.” The deferral allows borrowers to repay their missed payments at the time the home is sold or refinanced or at mortgage maturity.
This marks the sixth time the FHFA has extended the eviction and foreclosure moratorium on the program that was originally set to expire in June 2020. The last two extensions came during the holidays, as COVID-19 cases spiked both nationwide and in California.
“Extending Fannie Mae and Freddie Mac’s foreclosure and eviction moratoriums through January 2021 keeps borrowers safe during the pandemic,” said Calabria following the December 12 extension announcement. “This extension gives peace of mind to the more than 28 million homeowners with an Enterprise-backed mortgage.” He reiterated this philosophy in the January extension announcement, stating he wanted “to keep our communities safe, and families in their homes during the COVID-19 pandemic.”
Many states have followed the federal government’s lead and provided additional relief to their citizens. In California, Governor Gavin Newsom has promoted protection for residents negatively impacted by the COVID-19 pandemic. New legislation was signed last month, which extended relief to vulnerable tenants until June 2021.
“California’s most vulnerable tenants may continue to stay afloat during the pandemic, thanks to recent actions taken by the state legislature. On Thursday, January 28, 2021, California lawmakers approved the use of $2.6 billion in federal stimulus money to pay off up to 80% of income-qualified tenants’ unpaid rent. [The governor] is expected to sign the legislation into law. The solution directly responds to the challenges many renters still face today, nearly one year after the pandemic started.”
Looking into 2021
The fiscal impact of the pandemic cannot be fully understood yet, but from a general perspective, it has cost the U.S. government and U.S. citizens trillions of dollars.
FHFA “projects expenses of $1.5 to $2 billion will be borne by the Enterprises due to the existing COVID-19 foreclosure moratorium and its extension.” As we continue to navigate through these unprecedented times, FHFA will continue “to monitor the effect of the COVID-19 servicing policies on borrowers, the Enterprises and their counter-parties, and the mortgage market. FHFA may extend or sunset its policies based on the data and the health risk.” Stay tuned for further changes.