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Frequently Asked Questions About Unemployment Forbearance

August 15, 2013

For complete requirements, review Single-Family Seller/Servicer Guide Sections A65.27, Short-Term Unemployment Forbearance, and A65.28, Extended Unemployment Forbearance.

General

  1. How do short-term unemployment forbearance and extended unemployment forbearance differ from the existing short-term and long-term forbearance in Guide Chapter A65?
  2. What terms can I offer a borrower for short-term unemployment forbearance and extended unemployment forbearance?

Eligibility

  1. If a borrower is in a HAMP or Standard Modification trial period plan, can I offer them unemployment forbearance?
  2. Does the borrower need to be delinquent in order to qualify for short-term or extended unemployment forbearance?
  3. What criteria does a borrower have to meet to be eligible for short-term and extended unemployment forbearance?
  4. Are government-guaranteed mortgages eligible?
  5. How do you define "monthly housing expense"?
  6. Are there specific property eligibility requirements?
  7. What about borrowers with loans sold to Freddie Mac with recourse?

Operational

  1. In relation to other alternatives to foreclosure, at what point in the evaluation “hierarchy” should I evaluate a borrower for unemployment forbearance?
  2. Can I immediately submit to Freddie Mac requests for extended (more than six-months) unemployment forbearance?
  3. Are there changes to borrower solicitation timelines, processes, or forms as a result of this change?
  4. Do I need to submit all requests for unemployment forbearance to Freddie Mac for approval?
  5. What do I need to report to Freddie Mac when I have a borrower on short-term or extended unemployment forbearance?
  6. Can I use Workout Prospector® to assess borrowers for eligibility for unemployment forbearance options?
  7. The mortgage I am evaluating for unemployment forbearance is covered by mortgage insurance (MI). Does the MI need to approve the forbearance plan?
  8. If a borrower receives unemployment forbearance and becomes employed, what do I do?
  9. If a borrower is still unemployed at the end of the extended forbearance period, can I extend forbearance for a longer period of time?
  10. While a borrower is on a forbearance plan, should I report to credit bureaus, and if so, what should I report?
  11. Do I assess late fees while a borrower is on a forbearance plan?
  12. If the borrower did not make payments under the short-term unemployment forbearance plan, and there is no income other than unemployment benefits, does the borrower have to make a payment during the extended unemployment forbearance period?

General

  1. How do short-term unemployment forbearance and extended unemployment forbearance differ from the existing short-term and long-term forbearance in Guide Chapter A65?

    • Short-term unemployment forbearance and extended unemployment forbearance allow for reduced or suspended mortgage payments for up to a total of 12 months for borrowers with a financial hardship due to unemployment.
    • Short-term forbearance detailed in Guide Sections A65.18 through A65.21.1 provides forbearance to borrowers, including unemployed borrowers, which allows suspended payments for up to three months and reduced payments for up to six months.
    • Long-term forbearance in Guide Chapter A65 does not apply to unemployed borrowers unless the borrower's place of employment has been damaged by a natural or man-made disaster.
  2. What terms can I offer a borrower for short-term unemployment forbearance and extended unemployment forbearance?

    You can offer an unemployed borrower a short-term unemployment forbearance period of six months with either reduced or suspended payments. (The borrower’s delinquency level should not be taken into consideration when determining the length of the short-term unemployment forbearance plan.) If needed, and the borrower is eligible, you may offer extended unemployment forbearance for up to an additional six months with Freddie Mac’s approval.

Eligibility

  1. If a borrower is in a HAMP or Standard Modification trial period plan, can I offer them unemployment forbearance?

    If a borrower becomes unemployed while in a HAMP or Standard Modification trial period plan, you may offer them unemployment forbearance, but you cannot require them to enter into unemployment forbearance.
  2. Does the borrower need to be delinquent in order to qualify for short-term or extended unemployment forbearance?

    An unemployed borrower may be either current or delinquent to qualify for short-term or extended unemployment forbearance.
  3. What criteria does a borrower have to meet to be eligible for short-term and extended unemployment forbearance?

    To be eligible for short-term unemployment forbearance, the borrower:

    • Must have a financial hardship due to unemployment.
    • May be either current or delinquent on the mortgage.
    • Must occupy the property as his or her primary residence.

    The full eligibility requirements for extended unemployment forbearance are in Guide Section A65.28(a). The main requirements, in addition to an unemployment hardship, include that the borrower's:

    • Current monthly housing expense-to-income ratio (excluding unemployment benefits) must be greater than 31 percent.
    • Cash reserves cannot exceed 12 months of their monthly housing expense.
  4. Are government-guaranteed mortgages eligible?

    For borrowers with government-guaranteed mortgages (i.e., FHA or VA mortgages), Servicers must follow applicable agency guidelines for extending forbearance. For complete eligibility requirements, refer to Guide Sections A65.26 through A65.28.
  5. How do you define "monthly housing expense"?

    The monthly housing expense is comprised of the following, as applicable:

    • Principal and interest
    • Escrows for taxes, property insurance, and flood insurance (or pro rata amounts for these expenses if not escrowed)
    • Borrower-paid mortgage insurance premium
    • Escrow shortage payments on the existing mortgage
    • Monthly homeowners association dues
    • Condominium unit or cooperative unit maintenance fees
    • Ground rent 
  6. Are there specific property eligibility requirements?

    Yes, the full requirements are in Guide Sections A65.26 through A65.28. The main requirements are:

    • Only a borrower's primary residence is eligible. Second homes and investment properties are ineligible.
    • The property cannot be vacant, condemned, or abandoned.
  7. What about borrowers with loans sold to Freddie Mac with recourse?

    We strongly encourage, but do not require, Servicers to consider short-term or extended unemployment forbearance for borrowers with mortgages sold to Freddie Mac with recourse. Refer to Guide Section A65.26.(b.5) for complete requirements on mortgages subject to recourse.

Operational

  1. In relation to other alternatives to foreclosure, at what point in the evaluation "hierarchy" should I evaluate a borrower for unemployment forbearance?

    If a borrower has a hardship due to unemployment, you must first consider the borrower for short-term unemployment forbearance prior to pursuing other alternatives to foreclosure.
  2. Can I immediately submit to Freddie Mac requests for extended (more than six-months) unemployment forbearance?

    Extended unemployment forbearance should only be considered by you and Freddie Mac if the borrower is still unemployed after the borrower has been placed on a short-term forbearance option. Refer to Guide Section A65.27(f) on transitioning from short-term unemployment forbearance to extended unemployment forbearance.
  3. Are there changes to borrower solicitation timelines, processes, or forms as a result of this change?

    No. Current requirements for borrower solicitation, as well as all forms currently in use, apply to Servicers assessing borrowers for unemployment forbearance.
  4. Do I need to submit all requests for unemployment forbearance to Freddie Mac for approval?

    No. Servicers are delegated to grant short-term unemployment forbearance to borrowers who meet our requirements.
  5. What do I need to report to Freddie Mac when I have a borrower on short-term or extended unemployment forbearance?

    Within the first three business days of the month following the month you entered into the forbearance plan, via an electronic default reporting (EDR) transmission, report default action code 09 (forbearance plan) with default reason code 016 (unemployment) and provide the date of the forbearance plan. Report these each month that unemployment forbearance applies.

    If the borrower was in a HAMP trial period and enters into an unemployment forbearance plan, you must cancel the HAMP trial period plan with the Making Home Affordable program administrator.
  6. Can I use Workout Prospector® to assess borrowers for eligibility for unemployment forbearance options?

    No. You must manually underwrite a borrower to determine if they are eligible for short-term or extended unemployment forbearance. However, you must use Workout Prospector if the borrower must be evaluated for other alternatives to foreclosure.
  7. The mortgage I am evaluating for unemployment forbearance is covered by mortgage insurance (MI). Does the MI need to approve the forbearance plan?

    Yes, the MI must approve the forbearance plan before you offer the borrower forbearance.
  8. If a borrower receives unemployment forbearance and becomes employed, what do I do?
    Once a borrower becomes re-employed, you should evaluate them for reinstatement or a repayment plan. If the borrower is unable to bring the mortgage current through reinstatement or a repayment plan, you should consider the borrower for a workout option in accordance with the Guide.

    As a reminder, prior to the end of the extended unemployment forbearance plan, or upon borrower notification that they are re-employed, whichever comes first, you must request updated documentation from the borrower and evaluate them for the most appropriate resolution to the delinquency in accordance with the Guide.
  9. If a borrower is still unemployed at the end of the extended forbearance period, can I extend forbearance for a longer period of time?

    No. Unemployment forbearance can only be extended for up to an additional six months and may not be extended beyond a date that would cause the delinquency to exceed 12 months of the borrower’s contractual monthly mortgage payments, including taxes and insurance if you are collecting escrows for those expenses.
  10. While a borrower is on a forbearance plan, should I report to credit bureaus, and if so, what should I report?
    You should continue to report a “full-file” status report to the four major credit repositories for each mortgage loan in a forbearance plan in accordance with the Fair Credit Reporting Act and credit bureau standards as provided by the Consumer Data Industry Association.
  11. Do I assess late fees while a borrower is on a forbearance plan?

    Late fees may accrue while you are determining borrower eligibility for an unemployment forbearance plan. However, you must not assess or collect late fees during the unemployment forbearance period.
  12. If the borrower did not make payments under the short-term unemployment forbearance plan, and there is no income other than unemployment benefits, does the borrower have to make a payment during the extended unemployment forbearance period?
    No, if a borrower was not required to make payments under the short-term unemployment forbearance plan and none of the borrowers currently have income other than unemployment benefits, the borrower would not be required to make a payment under the extended forbearance plan.

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