GSEs will buy some loans in forbearance

The move will help provide liquidity to the mortgage market, says director

GSEs will buy some loans in forbearance

The Federal Housing Finance Agency announced Wednesday that Fannie Mae and Freddie Mac are authorized to buy certain loans in forbearance. The FHFA said it made the move to support homeowners and mortgage lenders impacted by the COVID-19 outbreak.

“We are focusing 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 the mortgage markets and allow originators to keep lending.”

Millions of borrowers have sought government-mandated mortgage forbearance due to the economic impact of the pandemic. Some borrowers sought forbearance shortly after closing on their loan, before the lender could deliver it to the GSEs. Mortgages that are either in forbearance or delinquent are usually ineligible for delivery under Fannie and Freddie requirements.

However, Wednesday’s action lifts that restriction for a time, and 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,” the FHFA said in a news release.

In practice, the GSEs will likely only be buying loans that go into forbearance within one month of closing. Robert D. Broeksmit, president and CEO of the Mortgage Bankers Association, said the new policy didn’t go far enough.

“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.”

The FHFA said it would continue to monitor the impact of the COVID-19 outbreak on the housing finance market and update its policies as necessary. On Tuesday, the agency released a rule limiting the number of advance payments servicers were required to make, in an effort to aid servicers giving borrowers mandated COVID-19 relief.

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