From forbearance to post-forbearance: How to make the process effective

Mortgage forbearance is still a reality for many borrowers and servicers, more than 10 months after the Coronavirus Aid, Relief and Economic Security Act (CARES Act) took effect last March.

Under the CARES Act, mortgage servicers must offer up to 12 months of forbearance, in up to 180-day increments, to COVID-19-affected homeowners who have federally backed mortgage loans for one to four-unit family properties.

Although the number of loans in forbearance has declined from the peak of 8.55% in early June, 5.37% of loans (approximately 2.7 million homeowners) remain in forbearance as of January 10.

To accommodate the large volume of loans still in forbearance, mortgage servicers must have functional, flexible and effective forbearance processes in place. Creating clear forbearance and post-forbearance plans should improve borrowers’ understanding of forbearance, speed up the overall process, and preserve revenue while avoiding costly foreclosures. Servicers can ease the process for borrowers by following these steps.

Communicate with Borrowers

Educate borrowers about the forbearance process. When implementing a forbearance plan, mortgage servicers must clearly explain to borrowers what forbearance means, what repayment options they have, and the implications (e.g., a potential delay in their ability to refinance their loan). Servicers can refer to Fannie Mae’s and Freddie Mac’s “COVID-19 Forbearance Script for Servicer Use with Homeowners” for guidance on how to discuss what forbearance means, how it works and repayment options.

Respond promptly. In a letter sent to 11 large servicers, requesting information about their forbearance program, the U.S. House Committee on Financial Services stated that “borrowers seeking assistance must be able to contact a customer service representative without excessive wait times or other delays.”

Servicers are experiencing another jump in call center volumes. According to the MBA’s Forbearance and Call Volume Survey, for the week ending Jan. 10, 2021, servicer volume increased to 9.2% from 7.2% the week prior, and call wait times increased to 3.6 minutes from 2.7 minutes the week prior. Average call length has also hit a survey high of 8.5 minutes, up from 7.8 minutes the week before.

Servicers should work diligently to answer borrowers’ questions and meet their needs promptly during this stressful time. Servicers should take advantage of borrower-facing web applications to provide mortgage statements and information to borrowers who aren’t in forbearance, to reduce routine phone calls and give servicers more time to talk with the forbearance borrowers.

Help Borrowers Create a Post-Forbearance Roadmap

Some borrowers mistakenly assume that they must repay the skipped payments in one lump sum. In fact, they have several repayment options. For example, Fannie Mae’s COVID-19 payment deferral option allows borrowers to defer the amount they owe to the end of their loan term (i.e., the maturity date).

Thirty days before the end of the forbearance period, mortgage servicers must contact borrowers to discuss repayment options and determine which one(s) work best for them. Borrowers may have several options:

  1. Repay the loan in one lump sum if they can (perhaps by withdrawing funds from their 401k, IRA or other retirement plans).
  2. Extend the forbearance period. As of January 10, 80.45% of the loans in forbearance are in a forbearance extension.
  3. Take advantage of a loss mitigation plan. This may include a repayment plan to keep borrowers in their homes, or loan modifications such as writing off part of the loan or extending the terms of the original loan.

If a loss mitigation plan is the best option, borrowers will complete a worksheet to allow the servicer to assess income, the size of the loan, and whether a repayment plan or a loan modification will be the better option. If a repayment plan is the way to go, the borrower may be able to start repaying at the end of the forbearance timeline. Loan modifications may include adjusting the principal and interest (P&I) payments, extending the loan term to 30 years or beyond, and/or decreasing the interest rate. Servicers should explore these options with borrowers to determine what best meets their needs.

Track Forbearance and Post-Forbearance Plan Details

With so many loans still in forbearance, servicers need an efficient way to track the specific terms/details of each borrower’s forbearance and post-forbearance plans. Mortgage servicing software must be able to accommodate payment deferment and other loan modifications.

Use leading-edge mortgage software that has extensive loss mitigation capabilities, including a forbearance/deferment window that allows servicers to track:

  • Forbearance plan details on the loan level
    • Terms: number of months, starting and ending dates
    • Borrower details (e.g., type of hardship, status of the forbearance plan)
  • Post-forbearance plans
    • Repayment plans (e.g., reduced payments)
    • Loan modifications (e.g., new term length, interest rate)
    • Deferment of interest

Servicers can ease the forbearance process by communicating effectively with borrowers and helping them develop the right plans. By using mortgage servicing software to track forbearance and post-forbearance plan details, servicers can more efficiently handle the increased number of modifications. Versatile software allows borrowers and servicers to walk through the forbearance period with relative ease, remain up to date on the timeline and have a more complete picture of the necessary steps to return the borrowers’ mortgage to a current status.

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