Key highlights from this report:
- Many Americans have entered mortgage forbearance in recent weeks.
- Forbearance is when the lender temporarily pauses or reduces payments.
- Many of these plans were launched due to coronavirus (COVID-19).
- It’s possible to buy another home, after undergoing the process.
- The government issued new guidelines for buying a home after forbearance.
According to a recent report from the Mortgage Bankers Association (MBA), roughly 4.2 million homeowners nationwide are now in some kind of mortgage forbearance program. That’s more than 8% of total loan volume, according to the industry group.
Many of those homeowners are now wondering if they’ll ever be able to refinance or buy another home, once their COVID-related forbearance programs expire.
The short answer is yes, it’s possible for a well-qualified borrower to refinance a mortgage loan after forbearance, or to buy a new home. But there are some stipulations and requirements you should be aware of. The rules can vary, depending on what type of home loan you have.
The federal government recently issued new guidelines for refinancing or buying a new home after going through mortgage forbearance.
Generally speaking, borrowers must be current on their mortgage payments at the time they refinance or purchase another home. Additionally, three months must have passed from the end of the forbearance plan. Borrowers must also make three consecutive payments under their repayment plan, before they can refinance or buy a home.
Note: The above guidelines apply to conventional mortgage loans, those that are sold to Freddie Mac or Fannie Mae. Government-backed home loan programs like FHA and VA may have their own guidelines and requirements relating to forbearance.
Millions of Homeowners in COVID-19 Forbearance Programs
On May 26, the MBA reported an ongoing increase in the number of homeowners in mortgage forbearance plans nationwide. While the increase has been gradual from a week-to-week basis, the total number is significant. By their estimation, there are now 4.2 million homeowners in forbearance plans.
These plans have been rolled out over the past few weeks, giving some homeowners a degree of relief in these harsh economic times.
According to the MBA’s research, homeowners with FHA and VA loans have been hit especially hard by the COVID-19 pandemic and resulting economic turmoil.
Mike Fratantoni, Chief Economist for the Mortgage Bankers Association, recently stated:
“The decline in employment and income is hitting FHA and VA borrowers harder, leading to 11.6 percent of Ginnie Mae loans currently in forbearance.”
(Ginnie Mae guarantees mortgage-backed securities based on FHA and VA loans. Freddie Mac and Fannie Mae, on the other hand, back securities based on conventional or non-governmental loans.)
Buying a Home After Your Plan Ends
All of this brings us to the question at hand: Can you buy a home after using a COVID-related mortgage forbearance plan?
The short answer is yes. Homeowners using these programs are able to refinance and buy additional homes down the road, as long as they meet certain requirements.
According to a May 19 press release from the Federal Housing Finance Agency (FHFA):
“Borrowers are eligible to refinance or buy a new home if they are current on their mortgage (i.e. in forbearance but continued to make their payments or reinstated their mortgage). Borrowers are eligible to refinance or buy a new home three months after their forbearance ends and they have made three consecutive payments under their repayment plan, or payment deferral option or loan modification.”
The “GSEs” mentioned in this quote are the two government-sponsored enterprises (Fannie Mae and Freddie Mac) that buy conventional loans from lenders.
Resolving Credit-Reporting Issues
These guidelines are partly intended to rectify some credit-reporting issues. As it turns out, some homeowners using forbearance programs were having notations added to their credit reports. Those notations said something to the effect of “Account in forbearance, payment deferred,” and they were preventing some homeowners from qualifying for additional mortgage loans.
The recently enacted Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, says that mortgage servicers “shall report the credit obligation or account as current” for any home loan that goes into COVID-19-related forbearance.
Some loan officers were operating under the old rule that anyone with a “forbearance” notation on their credit report had to wait 12 months before refinancing or buying a new home.
To quote a recent HousingWire article:
“Now, the GSEs [Freddie Mac and Fannie Mae] are shaving nine months off of that waiting period, which would allow more borrowers to take advantage of the market’s low interest rates instead of being shut out for a year.”
In Plain English
This is all a bit confusing, even for industry professionals. Homeowners might be left scratching their heads over all of these new rules, laws and guidelines.
Here it is in plain English:
Homeowners who have used a mortgage forbearance program during the coronavirus (COVID-19) pandemic should be able to refinance or buy another home three months after their plan ends. But they must be current on their mortgage with three months of payments, post-forbearance.
Again, most of this applies to conventional home loans (those that are not guaranteed or insured by the federal government). Conventional mortgages account for the majority of loan volume nationwide. The government-backed programs, like FHA and VA, have their own stipulations regarding forbearance plans.
The bottom line, according to housing officials, is that homeowners who have used COVID-19 forbearance plans but continue to make their mortgage payment should not be penalized.