A Little Relief – On Refinance After Forbearance

Mortgage Refinance Forbearance Update

Yesterday, I reported that you should refinance before doing a mortgage forbearance, because once your mortgage loan is in forbearance, you cannot refinance of obtain a new loan until one year (1 year) after the loan payments are up to date.

Today, Tuesday 5/19/2020, the Federal Housing Finance Agency (FHFA) announced that borrowers, with Fannie Mae and Freddie Mac backed loans (GSEs – Government Sponsored Enterprise), can refinance or buy a new home after making three straight months of payments after their forbearance ends.

Therefore, you will not have to wait a year; instead, you will only have to wait three months after your forbearance has ended. Provided that you make three straight months of payments.

In addition, borrowers who went into forbearance (either of their own volition or by accident, as happened to some borrowers) but continued to make their mortgage payments are eligible to refinance or buy a new home as long as they are current on their mortgage.

“Homeowners who are in COVID-19 forbearance but continue to make their mortgage payment will not be penalized,” FHFA Director Mark Calabria said. “Today’s action allows homeowners to access record low mortgage rates and keeps the mortgage market functioning as efficiently as possible.”

Also related, last month, Fannie and Freddie announced that they would begin buying loans that went into first-payment forbearance, meaning those where the borrower went into forbearance within one month of the loan closing.

That policy was set to expire on May 31, but the FHFA said Tuesday that the GSEs are extending it through August 31, 2020.

“The Enterprises are now able to buy forborne loans, with note dates on or before June 30, 2020, as long as they are delivered to the Enterprises by August 31, 2020 and have only one mortgage payment has been missed,” the FHFA said Tuesday. “FHFA and the Enterprises will continue to monitor the impact of the coronavirus national emergency on the housing finance market and update our policies as necessary.”

Given the continuous changing rules, our recommendation remains the same. You should refinance before going into forbearance. That way you can take advantage of the lower interest rates; which means lower monthly payments for you. And, after forbearance, your monthly payments remain lower