Cuomo Claims Sandy Victims Subject to Balloon Payments to Fannie and Freddie

New York Gov. Andrew Cuomo is claiming current policies of Fannie Mae and Freddie Mac could leave borrowers who were affected by Hurricane Sandy with being forced to make an immediate balloon mortgage payment of more than $6,000 or see a monthly payment spike of more than $500 or 50%.

According to Cuomo—who was secretary of Housing and Urban Development in the Clinton Administration—Fannie Mae and Freddie Mac’s current guidelines could force Sandy victims who received temporary forbearance periods on their mortgage payments in the wake of the storm to make immediate balloon repayments for the entire amount of relief that they received or see an immediate spike in their monthly mortgage payments.

The New York State Department of Financial Services, sent letters to Fannie Mae and Freddie Mac, as well as their regulator, the Federal Housing Finance Agency.

The initial forbearance periods are starting to end and reportedly DFS has received reports and complaints about the repayment plans offered to homeowners. While, in many instances, banks and servicers are offering an extension of the length of the loan or the choice of a non-interest bearing payment due at the end of the loan, the banks and servicers have also reported that they can only offer these options for loans that they own outright. DFS said those servicers have cited restrictions on loans sold to Fannie Mae and Freddie Mac as preventing them from offering those options to all homeowners.

A spokesman for Freddie Mac responded, "After Hurricane Sandy struck, we authorized lenders to suspend mortgage payments for up to 12 months and to collect the missed payments through individually tailored repayment plans or loan modifications. We also instructed lenders to expedite the distribution of insurance proceeds so families would have the money to start repairs and pay for emergency shelter and living expenses. Freddie Mac shares Gov. Cuomo's commitment to helping borrowers in eligible major disaster areas and is closely reviewing the letter from his administration."

While not responding directly to Cuomo's remarks, a spokesman for Fannie Mae noted that the borrower is still responsible for repaying what is owned. Some might be able to do so in a lump-sum payment at the end of the forbearance period, others might be able to make up what is owed through higher monthly payments.

And then there are those borrowers who won't be able to do either, so they will need a longer forbearence period if they are expecting to see their financial situation improve. Others who have seen their income and/or property severly impacted and it is unlikely they could afford a lump-sum payment or higher monthly payment can go right into a modification to address their longer-term financial hardship, he said.

The point is to give homeowners and servicers flexibiility to reach the best soluion for that individual, the Fannie Mae spokesman concluded.