FHFA: GSEs Will Purchase Qualified Loans in Forbearance

The Federal Housing Finance Agency said it would approve purchase of certain single-family mortgages in forbearance that meet specific eligibility criteria by Fannie Mae and Freddie Mac.

“We are focused on keeping the mortgage market working for current and future homeowners during these challenging times,” said FHFA Director Mark Calabria. “Purchases of these previously ineligible loans will help provide liquidity to mortgage markets and allow originators to keep lending.”

The announcement marks the second major FHFA announcement this week. On Tuesday, FHFA said it aligned Fannie Mae and Freddie Mac policies regarding servicer obligations to advance scheduled monthly principal and interest payments for single-family mortgage loans. The new policy states once a servicer has advanced four months of missed payments on a loan, it will have no further obligation to advance scheduled payments. This applies to all Fannie/Freddie servicers regardless of type or size.

Mortgage Bankers Association President and CEO Robert D. Broeksmit, CMB, released a statement (https://www.mba.org/2020-press-releases/april/mba-statement-on-fhfas-announcement-on-purchasing-qualified-loans-in-forbearance) expressing concern with FHFA’s actions.

“We welcome the change in policy that directs the GSEs to purchase most loans in forbearance, providing needed liquidity for lenders who provide sustainable mortgage options to borrowers,” Broeksmit said. “More work needs to be done to ensure that the details of the forbearance policy do not constrain credit availability. We will continue working with FHFA and the GSEs to arrive at more appropriate pricing and broad coverage for all transactions.

Broeksmit noted the GSEs were chartered to play a countercyclical role providing liquidity to the mortgage market, particularly in times of stress. FHFA originally created the forbearance program, since codified by the CARES Act, which requires lenders to offer forbearance to the unprecedented number of Americans affected by the coronavirus pandemic, regardless of transaction type.

“Lenders have already been forced to increase costs and tighten underwriting requirements to account for situations in which they cannot sell loans due to borrowers availing themselves of the forbearance options that FHFA introduced,” Broeksmit said. “The pricing regime announced today is likely to perpetuate some of these more restrictive credit terms. Today’s historically low rate environment has the potential to generate much-needed economic stimulus at a time when it is desperately needed in the form of lower monthly payments and by leveraging borrowers’ home equity to invest in home improvements, children’s education, etc. By excluding cash-out refinances, this announcement is likely to reduce that vital stimulus.”

FHFA said as a result of the COVID-19 pandemic, some borrowers have sought payment forbearance shortly after closing on their single-family loan and before the lender could deliver the mortgage loan to the government-sponsored enterprises (Fannie Mae and Freddie Mac). Mortgage loans either in forbearance or delinquent are ineligible for delivery under GSE requirements. However, FHFA’s announcement lifts that restriction for a limited period and only for mortgages meeting certain eligibility criteria. Eligible loans will also be priced to mitigate the heightened risk of loss to the Enterprises from these loans.

“These prudential measures also ensure fulfillment of the Enterprises’ charter requirements to only purchase loans that meet the purchase standards imposed by private, institutional mortgage investors,” FHFA said.

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.

Earlier this week, FHFA said when a mortgage loan is in a mortgage-backed security, Fannie Mae servicers with a scheduled payment remittance are responsible for advancing the principal and interest payment regardless of borrower payments. Freddie Mac servicers, who are generally responsible for advancing scheduled interest, are only obligated to advance four months of missed borrower interest payments. FHFA has established a four-month advance obligation limit for Fannie Mae scheduled servicing for loans and servicers, consistent with the current policy at Freddie Mac. 

FHFA is also instructing the Enterprises to maintain loans in COVID-19 payment forbearance plans in Mortgage Backed Security (MBS) pools for at least the duration of the forbearance plan.  

FHFA noted mortgage loans that are delinquent for more than four months, historically were purchased out of MBS pools by the Enterprises. The new instructions clarifies that mortgage loans with COVID-19 payment forbearance shall be treated like a “natural disaster event” and will remain in the MBS pool.

“This change reduces the potential liquidity demands on the Enterprises resulting from loans in COVID-19 forbearance and delinquent loans,” FHFA said.

More information can be found on the FHFA Webpage on Coronavirus Actions.