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In a week where new jobless claims spiked once again, the Federal Housing Finance Agency (FHFA) has made two more moves to help the housing market as millions of financially strapped Americans are granted temporary reprieves from making their monthly mortgage payments.
On Tuesday, April 21, the FHFA announced that Fannie Mae and Freddie Mac could buy mortgages on single-family homes that have recently gone into forbearance. That was a day after the regulator announced that mortgage servicers would only have to cover four months of nonpayments for mortgages in forbearance.
Both moves are intended to address liquidity concerns that have soared along with missed payments as the U.S. economy careened into recession due to the coronavirus pandemic. An estimated 3 million mortgages are currently in such a state.
Buying troubled mortgages right after the close
The FHFA -- which now has made several moves to help keep the market moving -- also is allowing its government-sponsored enterprises (GSEs) to buy loans that go into forbearance in the first month after they close.
"Due to 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 Enterprises," the FHFA said in its announcement on Wednesday.
In normal times, the quasi-public companies could not buy troubled mortgages. Now that's permitted if certain eligibility requirements are met, including:
- The loans must have closed on or after Feb. 1 and before May 31.
- The loans must be new money purchases or refinances with no cash out.
- The loans cannot be more than 30 days delinquent.
"We are focused on keeping the mortgage market working for current and future homeowners during these challenging times," FHFA director Mark Calabria said. "Purchases of these previously ineligible loans will help provide liquidity to mortgage markets and allow originators to keep lending."
A four-month front
The four-month rule applies to all servicers of GSE-backed loans regardless of type or size, according to the parent agency of Fannie Mae and Freddie Mac.
"The four-month servicer advance obligation limit for loans in forbearance provides stability and clarity to the $5 trillion Enterprise-backed housing finance market," Calabria said. "Mortgage servicers can now plan for exactly how long they will need to advance principal and interest payments on loans for which borrowers have not made their monthly payment."
The GSEs use mortgage-backed securities (MBSs) to fund the liquidity for much of their activity. When that's the case, Fannie Mae servicers with a scheduled payment remittance are responsible for advancing the principal and interest payment regardless of borrower payments, the FHFA said. The new four-month limit for Fannie Mae loans now puts it in line with Freddie Mac policies.
Both companies also must now maintain loans in COVID-19 payment forbearance plans in MBS pools for at least the life of that loan's plan.
"Mortgage loans that are delinquent for more than four months, historically were purchased out of MBS pools by the Enterprises," the FHFA announcement said. "Today's action 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."
Not everyone's on board
The GSEs had already moved to suspend evictions and foreclosures. But not every lender and servicer is on board with the new rules.
For instance, PennyMac (NYSE: PFSI), a residential mortgage originator and servicer of more than $368 billion in loans, has said it won't buy loans that are either in forbearance or on their way.
And the problem may only get worse. The Mortgage Bankers Association (MBA) said this week that its weekly survey showed the number of loans in forbearance had reached 5.95% of servicers' portfolio volume as of April 12.
"Mortgage servicers continue to receive a very high level of forbearance requests, but volumes were down somewhat compared to the prior week. Given that lockdowns and associated job losses will continue in the coming weeks, forbearance inquiries will likely rise again as we approach May payment due dates," said Mike Fratantoni, senior vice president and chief economist for the MBA.
"Borrowers facing COVID-19-related hardships should contact their servicer to review all of their options," Fratantoni said.
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