As a result of COVID-19’s impact on the economy, many multifamily owners are facing a number of challenges. Owners are concerned if their tenants will be able to pay rent, and in turn, if they will be able to make timely mortgage payments – a potentially disastrous chain reaction. For those multifamily projects financed with a Fannie Mae or Freddie Mac loan, guidelines have been announced in accordance with the CARES Act for those properties experiencing hardships as a result from COVID-19.
One scenario emerging as an option for some multifamily borrowers is forbearance. The term means a reprieve on making monthly principal and interest payments, which can be granted by a lender to its borrower that can demonstrate hardship resulting from COVID-19 in order to avoid default. This is an accommodation to help preserve the borrower’s standing under extreme circumstances and when there is a proven financial hardship.
What are the Requirements of Loan Forbearance?
The requirements for the granting of forbearance vary, but borrowers of multifamily Fannie Mae and Freddie Mac loans that are in good standing may qualify for up to a 90-day period where a borrower is not obligated to pay its monthly debt service principal and interest payments. Additionally, during this time, late fees may be waived. At the end of the approved forbearance period (which, as of now, can begin between 4/1/20-8/31/20 for Fannie Mae loans and 4/1/20-the earlier of either the end of the National Emergency or 12/31/20 for Freddie Mac loans), the forborne amounts are required to be paid, but over an extended period of up to 12 months.
However, not all borrowers will qualify for forbearance under the requirements put forth by Fannie Mae or Freddie Mac, and the borrower must request forbearance from its lender (or mortgage loan servicer) and demonstrate that the property is experiencing financial hardship as a result of COVID-19. For example, Freddie Mac will not entertain a request for forbearance unless the loan was current prior to forbearance, did not have any outstanding fees due and the taxes, insurance and water/sewer bills are current and paid as well.
Consider the Strict Conditions Before Applying for Forbearance
To apply and ultimately be approved for a forbearance agreement, a borrower will need to provide, among other things, a “hardship letter” that explains the challenges in making timely mortgage payments. Further, a current rent roll showing units that have vacated (or expected to not pay rent) due to the pandemic is required. Greystone’s FAQ outlines more of the required materials as well as some of the ongoing reporting that may be required(in some cases, a delinquency report, and in others, providing monthly financial statements during the forbearance period).
Entering into a forbearance agreement with Fannie Mae or Freddie Mac comes with strict terms and conditions – including restrictions on eviction proceedings – and the terms of forbearance are typically non-negotiable.
The pandemic situation, and its impact on multifamily housing, is still evolving, but emergency measures such as forbearance can offer temporary relief for multifamily owners and investors. As a lender, Greystone is committed to guiding its borrowers through the options during this difficult period.
The agencies are constantly evolving and updating their requirements so please review the FAQ for the latest on requirements for requesting forbearance with Fannie Mae and Freddie Mac.