Mortgage loan modification after forbearance

The other day, we blogged about mortgage loan forbearance and the requirements under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) recently passed by the United States Senate. The CARES Act includes provisions on forbearance for federally backed mortgage loans. Recently, we have received questions from credit unions who do not hold federally backed mortgage loans, but would still like to offer a forbearance period. These credit unions have asked about what this should look like in practice and what strategies they may employ in creating mortgage loan modifications agreements.

As explained in our blog on closed-end loan modifications, modifications of mortgage loans can be quite complex and vary greatly based on the loan agreements and applicable state laws. Modifications that allow for forbearance period may include reducing the interest rate, extending the term of the loan, or adding missed payments to the loan balance. A modification also may involve reducing the amount of money a member owes by forgiving, or cancelling, a portion of the mortgage debt.

Although not created for the current COVID-19 requirements for federally backed mortgage loans, there is some previous guidance issued by Freddie Mac which suggests a few post forbearance options to bring mortgage loans current once members are able to reestablish ability to pay.

Specifically, there are few types of mortgage loan modifications described in Freddie Mac guidance that credit unions may consider in offering modifications. If a credit union’s mortgages are not backed by the federal government or a government sponsored enterprise (GSE), the credit union is not obligated to follow a particular method in determining the new payment schedule, but the credit union might consider using these past models to create its own modifications.


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