What's really being said in the FHFA's "no lump sum" announcement?

The announcement is the FHFA's attempt to "combat ongoing misinformation"

What's really being said in the FHFA's "no lump sum" announcement?

The Federal Housing Finance Agency announced on Tuesday that Fannie and Freddie borrowers currently involved in forbearance plans will not be required to make lump-sum payments once the COVID-19 pandemic subsides. It’s a move that should alleviate some of the anxiety being felt by borrowers worried about the impact forbearance will have on their financial well-being.

The policy is the Agency’s attempt to bring clarity to the issue of forbearance at a time when borrowers are still scrambling for information on how the process plays out, both in the short- and long-term. Homeowners know they are entitled to a portion of the federal government’s $2 trillion COVID-19 stimulus plan, but for many, that’s the extent of the education that’s been provided by the feds.

The first four words of the Agency’s press release, “To combat ongoing misinformation”, imply that mixed messages are hindering Americans’ understanding of mortgage forbearance. But the release makes no further mention of what the alluded to “misinformation” is or where it comes from.

Some in the industry feel the biggest source of misinformation around forbearance has been the FHFA itself. To its credit, the Agency has been somewhat busier than usual churning out new policies to mitigate the effects of COVID-19 on the housing and lending spaces. But in its haste, the FHFA has offloaded the consumer education burden onto lenders and servicers rather than provide a comprehensive, centralized source of information around such an important financial decision.

According to Teresa Tims of TDR Mortgage and Real Estate Group, it’s possible the FHFA’s messaging is the result of taking too kind a view of Americans’ financial literacy.

“The average consumer doesn’t even know what FHFA is. They don’t know if they have a Freddie loan. They don’t know if they have a Fannie loan. They just think of it as ‘loans,’” Tims says. “People are looking at it like a benefit, like a right, without really knowing that forbearance is looked at as a major credit event that could lower your scores by 100 points – and often does.”

Ironically, the FHFA announcement, ostensibly intended to clear the air of misinformation, managed to muddy the waters even further.

“While today's statement only covers Fannie Mae and Freddie Mac mortgages,” said Calabria, “I encourage all mortgage lenders to adopt a similar approach."

As with the Agency’s initial stance on forbearance – essentially “Come and get it!” – its new announcement around lump-sum payments technically means relief for borrowers. But the lack of more granular information will inevitably mean more headaches for lenders and servicers, who will now potentially face dozens of calls of the “The FHFA said you should do this, and now you’re telling me you won’t?” variety.

“I’m puzzled by this message,” says Tims. “It offers less clarity rather than more.”

It’s not the first time this month the FHFA has acknowledged that the information it shares with consumers around forbearance may require tweaking. On April 15, the Agency partnered with the Consumer Financial Protection Bureau to, as Calabria said at the time, “address misconceptions stemming from consumer complaints" and ensure borrowers receive “accurate information about their forbearance options.”

As with yesterday’s announcement, the source of the misinformation in question was not identified.