Mortgage chaos threatens to worsen once it’s time for repayment

The problem is confusion over what will happen when borrowers have to make up those payments. Federal agencies that back most of the market have introduced policies, some of which could require documentation that overwhelms servicers, leading to lengthy wait times and, in extreme cases, foreclosures.

Industry executives say Fannie Mae, Freddie Mac and their regulator are attempting to unveil a program in coming weeks that could alleviate many of the problems. Mortgage lenders say they hope the companies and their watchdog come up with a plan that prevents a repeat of the turmoil that followed the 2008 financial crisis, when confusion and delays hindered borrowers in trying to resume payments.

A Fannie spokesman referred a request for comment to the regulator, the Federal Housing Finance Agency. An FHFA spokesman didn’t comment on whether there is a fix in the works. A Freddie spokesman didn’t respond to requests for comment.

The $2.2 trillion stimulus package passed by Congress last month requires mortgage companies to let borrowers delay payments for at least six months if they have been hurt by the pandemic. Because the government wanted to provide help quickly, borrowers merely need to say they face a hardship to receive aid.

Fannie and Freddie have released an array of more-complicated options. Borrowers can choose to repay the forbearance in as long as 12 months, but if they can’t, they have to apply for a loan modification, which servicers say could trigger delays and documentation issues like those that occurred after the 2008 crisis.

An FHFA spokesman said Fannie and Freddie forbearance repayment options “allow servicers to work with borrowers to find a repayment option that works best for all parties.” He noted an FHFA announcement on Monday that made clear borrowers won’t be forced to repay forbearance in a lump sum.

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