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Fannie Mae released FAQs for the recent forbearance seasoning and mortgage payment guidelines. Please review the information below.
Question: Is a borrower considered current if they have been making partial payments during forbearance?
Answer: No. To be considered current, the borrower must have made all mortgage payments due in the month prior to the Note date of the new transaction by no later than the last business day of that month.
Question: Can missed payments during forbearance on an existing mortgage loan be refinanced into the new loan amount?
Answer: No. Missed payments during a forbearance may not be refinanced into the new loan amount.
However, if a borrower has initiated a repayment plan or accepted a loss mitigation solution and has made 3 timely payments, the entire loan amount, including any remaining outstanding payments under a repayment plan or deferred amounts, may be refinanced into the new loan.
Question: If the borrower has entered into a repayment plan to resolve missing payments during a forbearance, must it be completed before they are eligible for a new purchase or refinance transaction?
Answer: No. The borrower is eligible for a new purchase or refinance transaction after making 3 timely payments.
Alternatively, if the repayment plan is completed in fewer than 3 payments, then the borrower is eligible upon completion.
Question: What eligible sources of funds may be used to reinstate a mortgage loan with missed payments?
Answer: When a lump sum payment was made to reinstate a mortgage loan on or after the loan application date for the new transaction, the lender must document the source of funds in accordance with the eligible source of funds in the Selling Guide.
If the lump sum payment was made prior to the loan application date for the new transaction, no sourcing of funds is required.
Question: For loss mitigation solutions other than repayment, deferral or modification, what is meant by “full payments” in accordance with the program?
Answer: If another type of loss mitigation solution has been agreed to by the servicer and the borrower to resolve the missed payments, 3 “full payments” must be made in an amount no less than the required payment due under the terms of the Note, or any other agreement that permanently alters the payment amount, such as a loan modification agreement.
Question: What if a borrower completes a nonretention loss mitigation solution such as a mortgage release (deed-in-lieu) or short sale?
Answer: The borrower must continue to meet the Significant Derogatory Credit Events – Waiting Period and Re-establishing Credit in the Selling Guide.
Question: Does the additional due diligence required to confirm a borrower’s mortgage is current apply to all mortgage loans or only mortgage loans in forbearance?
Answer: The requirement to confirm that mortgage loans are current and do not have unresolved missed payments applies to every loan on which the borrower is obligated.
Question: If a borrower’s existing mortgage loan is in forbearance, but is current, does the borrower need to exit forbearance to be eligible for a new purchase or refinance transaction?
Answer: No. If the borrower is current on all mortgage loans, there is no requirement to exit forbearance prior to obtaining a new loan.
Question: What responsibility does the lender have if the borrower entered forbearance on an existing mortgage loan after applying for a new loan?
Answer: The lender must determine whether the existing mortgage loan is current or if the borrower has entered into and made 3 full timely payments under a loss mitigation solution as of the Note date of the new mortgage loan.
Question: When a borrower refinances after a payment deferral, is the new loan considered a rate/term refinance or a cash-out refinance?
Answer: When a borrower refinances a loan that has a payment deferral and the amount of the deferred payments is included in the new loan, the new loan is eligible as a rate/term refinance if it otherwise meets all of the rate/term refinance requirements. Funds applied to pay off the prior loan, including the deferred portion, are not considered cash out.
Question: If the borrower has entered a repayment plan or other loss mitigation solution must the required 3 timely payments be consecutive?
Answer: Yes. Regardless of the loss mitigation solution, the borrower must make 3 consecutive payments to be eligible for the new transaction. If a borrower misses one or more of the 3 required payments, the loan is not eligible, and the borrower should contact their mortgage loan servicer to discuss an appropriate loss mitigation solution.
Question: What is a reinstatement of a mortgage loan?
Answer: A mortgage loan is considered reinstated if the borrower has paid all missed payments and any associated fees or other expenses in a lump sum payment in order to return the mortgage loan to a current status under the terms of the original Note.
Question: Can I still rely on an Approve/Eligible recommendation in DU?
Answer: Yes. However, the lender must comply with the additional due diligence requirements to determine if all mortgage loans are current and that any missed payments have been resolved.
These additional eligibility requirements are currently not automated in DU and must be manually applied.
Question: If the borrower is on a repayment plan on another mortgage loan, does the higher payment amount need to be used in qualifying?
Answer: Yes. If the borrower is on a repayment plan temporarily requiring higher payments to repay missed amounts, the PITIA under the terms of the repayment plan must be used in qualifying. The lender must ensure that the requirements are met and that the borrower has made 3 payments under the repayment plan agreement to be eligible for a new purchase or refinance transaction.
Question: Do the temporary eligibility requirements apply to mortgage loans secured by a property that will be sold prior to the Note date of the new transaction?
Answer: No, as long as the lender provides evidence that the property was sold, and the mortgage loan was paid off prior to the Note date of the new transaction.
- On a purchase transaction, the underwriter must assess the risk to be confident the borrower will not request a forbearance after closing.
- Since we need to document proof the loan is paid off prior to the Note date of the new transaction, simultaneous closings will not be an option.
Question: Is forbearance considered an “other loss mitigation solution” not specifically listed in the forbearance seasoning table?
Answer: No. If a borrower is obligated on a mortgage loan that is in forbearance but is current and does not have missed payments, the new mortgage loan is eligible.
If the borrower is obligated on a mortgage loan that is in forbearance and the mortgage loan is not current, the new mortgage loan is not eligible unless the missed payments on the existing mortgage loan are resolved by meeting the applicable additional eligibility requirements.