Fannie Mae's Single-Family Loan Payment Forbearance Option during Natural Disasters
We are committed to supporting our customers and homeowners impacted by Hurricane Harvey, and providing transparency to our investor partners. In response to the recent events surrounding Hurricane Harvey, we are providing this information to help Mortgage Backed Securities (MBS) and Connecticut Avenue Securities™ (CAS) investors understand Fannie Mae’s Single-Family Servicing Guidelines which relate to payment forbearance during natural disasters.
The following steps highlight Fannie Mae's disaster relief flexibilities available for servicers to use to assist borrowers that servicers have determined to have been impacted by the hurricane.
- Disaster relief begins with servicers granting an initial forbearance period for disaster recovery of up to ninety days if the servicer believes a natural disaster has adversely affected the value or habitability of the property or if the natural disaster has temporarily impacted the homeowner's ability to make payments on his or her mortgage. The disaster recovery allows a servicer to temporarily suspend or reduce a homeowner’s mortgage payments. Since these events can make it difficult to reach homeowners, Fannie Mae permits servicers to grant this temporary relief even if they cannot contact the impacted homeowners immediately.
- When a servicer establishes contact with a homeowner and assesses that the borrower’s employment or income has been seriously affected by a disaster event, the servicer may offer payment forbearance for up to six months, which may be extended for an additional six months, for those homeowners that were current or ninety days or less delinquent when the disaster occurred. For those borrowers that are 90 days delinquent prior to the natural disaster, servicers may offer a temporary forbearance for up to three months if no borrower contact has been made and for up to six months if borrower contact has been made. Any forbearance plan that exceeds these respective time periods must be approved by Fannie Mae.
- When a borrower enters into a forbearance plan, the borrower may choose not to make a payment or may make partial payments instead of the full monthly loan payments required for the loan to be current. In this instance, the servicer reports the loan to Fannie Mae as delinquent as measured by the last paid installment date. However, the servicer during this period will temporarily suspend the reporting of delinquencies to the credit bureau when the delinquency is attributed to a hardship as a result of a natural disaster.
- After a forbearance plan is granted, the servicer must continue to work with the borrower to determine what additional steps can be taken (for example, application of insurance claim settlements to repair the property). If the loan has not been brought current by the expiration of the forbearance plan, the servicer must evaluate the mortgage loan for a workout option by either extending the forbearance period, entering the borrower into a repayment plan, or assessing the borrower for one of our standard loss mitigation options, e.g., a modification.
Forbearance Treatment in MBS
As stated in Fannie Mae’s MBS Trust Agreements, Fannie Mae has the option, but is not required, to remove loans when the borrower becomes four or more months delinquent. Although Fannie Mae generally removes loans from the MBS when the borrower is delinquent with respect to four consecutive full payments, Fannie Mae has the option to consider various factors to determine whether a loan should be removed from the MBS. For a loan in forbearance that is in a Fannie Mae MBS, Fannie Mae’s current practice is to keep the loan in the MBS even if the loan is reported as being four or more months delinquent. While the loan is in forbearance and in a Fannie Mae MBS, investors continue to receive scheduled principal and interest, under Fannie Mae’s guaranty of the MBS certificates.
If the loan is either brought current or immediately enters into a repayment plan at the expiration of the forbearance plan, it will remain in the MBS. If a loan does not become current at the expiration of the forbearance plan, the servicer may extend the forbearance period, which would generally allow the loan to remain in the MBS1, or evaluate the borrower for a loss mitigation option. Depending on the loss mitigation option, the loan may be removed from the MBS. In certain instances, the loan may continue to be delinquent at the expiration of forbearance and as such Fannie Mae may exercise its option to purchase the loan out of the MBS. Full details on our forbearance plans and disaster relief process can be found in our Servicing Guide chapter D1-3: Providing Assistance to a Borrower Impacted by a Disaster.
Forbearance Treatment in CAS
As a result of the impact of Hurricane Harvey, Fannie Mae is updating its CAS program transactions issued under the ‘fixed severity’ framework (those deals from CAS 2013-C01 through and including CAS 2015-C03). Under the CAS fixed severity framework, a loan that becomes 180-days or more delinquent is treated as a credit event regardless of any grant of forbearance. With this update, loans that are granted temporary forbearance as a result of Hurricane Harvey will not be deemed to have experienced a credit event at 180 days delinquency. Rather, Fannie Mae will wait 20 months from the point at which a servicer grants initial disaster recovery relief to a borrower due to Hurricane Harvey to evaluate the related loan for a delinquency related Credit Event.
Beginning with CAS 2015-C04, CAS transactions issued under the ‘actual loss’ framework are not impacted by the update described above and will remain subject to the timing and loss calculations as described in such offerings.
The obligation to make monthly interest payments to CAS noteholders remains a corporate obligation of Fannie Mae. The amount of interest paid is not reduced if the amount of actual interest collected on loans in the underlying reference pool is reduced, except in the case of a permanent modification as noted above.
Market participants may contact the Fannie Mae Investor Help Line at 1-800-2FANNIE, Option 2, or by e-mail with questions.
1 Fannie Mae’s Amended & Restated 2007 Single-Family MBS Master Trust Agreement, which covers Single-Family MBS with issue dates from June 1, 2007 through December 1, 2008 imposes limits on the period a loan can be in forbearance while it remains in the MBS Trust. Consequently, we generally remove a loan from the MBS Trust once the period of forbearance for such a loan reaches six months.