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Unemployment Forbearance

Extended unemployment is a reality that many borrowers continue to face. As a Freddie Mac Servicer, you have additional solutions to help unemployed borrowers keep their homes. By offering eligible borrowers our new forbearance relief options – a short-term unemployment forbearance period and, if needed, the possibility of an extended unemployment forbearance period – you can effectively assist struggling borrowers through a period of unemployment.

General Requirements

  • You have delegated authority to offer short-term unemployment forbearance to borrowers experiencing a financial hardship due to unemployment. You may suspend or reduce an eligible borrower's mortgage payments for a period of up to six months without a complete Borrower Response Package.
  • You have delegated authority to offer extended unemployment forbearance and reduce payments for eligible borrowers up to an additional six months without a complete Borrower Response Package. The borrower must make a payment that is equal to 31 percent of the borrower's gross monthly income (not including unemployment benefits) or the current payment due under the short-term unemployment forbearance plan, whichever is greater. The forbearance period may not extend beyond a date that would cause the delinquency to exceed 12 months. 
  • A borrower who was complying with the terms of his or her Home Affordable Modification program (HAMP) or Freddie Mac Standard Modification trial period plan prior to entering unemployment forbearance may be re-evaluated for a new HAMP or Standard Modification trial period plan if he or she is eligible at the termination or expiration of unemployment forbearance.
  • You must evaluate a borrower for short-term unemployment forbearance if a borrower notifies you that they are experiencing a financial hardship due to unemployment. If the mortgage is subject to recourse, including, but not limited to indemnification, you are encouraged but not required to consider the borrower for unemployment forbearance.

Eligibility

  • The borrower must have a financial hardship due to unemployment.
  • The property must be a principal residence.
  • Second homes, investment properties, and properties that are vacant, condemned, or abandoned are ineligible.
  • For short-term unemployment forbearance, the borrower:
    • May be either current or less than or equal to 12 months delinquent.
    • May be in a HAMP or non-HAMP trial period plan and convert to a forbearance plan.
  • For extended unemployment forbearance, the borrower must have:
    • Complied with the terms of the short-term forbearance plan.
    • Cash reserves less than or equal to 12 months of their monthly housing expense.
    • A current monthly housing expense-to-income ratio (excluding unemployment benefits) greater than 31 percent. 
  • If the mortgage is covered by mortgage insurance, you must obtain the MI's approval prior to offering the borrower unemployment forbearance. 

Documentation

  • You have delegated authority to offer short-term and long-term unemployment forbearance. The Servicer must document in the mortgage file its reasons for approving an extended unemployment forbearance plan.
  • If the borrower submitted a Borrower Response Package (BRP), you must review the BRP and comply with Servicing Alignment Initiative evaluation and notice requirements. A BRP is not required for short-term unemployment forbearance, but is required for extended unemployment forbearance. (A BRP from the initial forbearance review must have updated income and asset information for the extended forbearance review.)
  • You may be required to process IRS Form 4506/EZ to verify a borrower's income if the borrower has not provided his or her signed income tax return with all schedules and forms, or as otherwise required by Freddie Mac.

Forbearance Plan

  • The unemployment forbearance plan must be in writing and:
    • Indicate the duration of the unemployment forbearance.
    • State that the plan will terminate earlier upon the borrower's re-employment.
    • Require the borrower to provide updates on his or her employment status and immediate notification of re-employment.
    • Contain an explanation of what will occur upon expiration or re-employment.
    • State that borrowers in a HAMP modification are ineligible for incentives if the borrower loses good standing.
    • Indicate that terms may be re-evaluated if there is a material change in the borrower's financial circumstances.
    • State that you will cancel the plan and initiate or resume foreclosure if the borrower defaults on the terms of the plan.
  • You must have written policies and procedures relating to forbearance plans, including how to determine if a payment will be required and how the amount will be calculated. 
  • An unemployment forbearance plan will be terminated if:
    • Any of the eligibility criteria are no longer applicable.
    • The property becomes vacant, abandoned, or condemned.
    • The borrower advises you that he or she is no longer actively seeking employment.
    • The borrower fails to make timely payments. 
  • Late charges may accrue while you determine borrower eligibility.
  • You may not accrue or collect late fees during the unemployment forbearance period. 

Reporting

  • You must notify us via an electronic default reporting (EDR) transmission within the first three business days of the month following the month that you entered into an unemployment forbearance plan. Use default action code 09 and default reason code 016, and provide the date of the agreement.
  • You should continue to report a "full file" status report to the four major credit repositories for mortgages in an unemployment forbearance plan, in accordance with applicable law and the standards established by the CDIA. 

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