In a move that will boost liquidity for the mortgage lending market, the Federal Housing Finance Agency (FHFA) has directed government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac to purchase certain single-family mortgages in forbearance that meet specific eligibility criteria.
“We are focused on keeping the mortgage market working for current and future homeowners during these challenging times,” says Mark Calabria, director of the FHFA, in a statement. “Purchases of these previously ineligible loans will help provide liquidity to mortgage markets and allow originators to keep lending.”
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 GSEs. Mortgage loans either in forbearance or delinquent are ineligible for delivery under GSE requirements.
However, the FHFA’s action lifts that restriction for a limited period of time and only for mortgages meeting certain eligibility criteria.
Eligible loans will also be priced to mitigate the heightened risk of loss to the GSEs from these loans.
These prudential measures also ensure fulfillment of the GSEs’ charter requirements to only purchase loans that meet the purchase standards imposed by private, institutional mortgage investors.
Robert D. Broeksmit, CMB, president and CEO of the Mortgage Bankers Association (MBA), welcomed the policy change, but 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 says in a statement.
“The GSEs were chartered to play a countercyclical role providing liquidity to the mortgage market, particularly in times of stress,” Broeksmit explains. “[The] 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 says. “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.,” he adds. “By excluding cash-out refinances, this announcement is likely to reduce that vital stimulus.”