FHFA: GSEs To Purchase Qualified Loans In Forbearance
April 22, 2020
The Federal Housing Finance Agency has approved the purchase of certain single-family mortgages in forbearance. To be eligible, the loans must meet a specific criteria by Fannie Mae and Freddie Mac. The move has been made to help mortgage lenders and homeowners who have been impacted by the COVID-19 crisis.
“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."
As a result of the pandemic, 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. Mortgage loans that are in forbearance or delinquent are ineligible for delivery under Enterprise requirements.
The FHFA's move was made in order to lift 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 Enterprises from these loans, according to the release.
"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," said the FHFA.
Mortgage Bankers Associaiton President and CEO Robert D. Broeksmit, CMB, said: “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."
Faith Schwartz, president of Housing Finance Strategies, said: "This is a huge step forward for liquidity to make loans and ensure seamless execution into the secondary market. I applaud the GSE’s for this step and the FHFA, as this move will help the market function properly which is part of their role in the business."
Mortgage Industry veteran David Luna, president of Mortgage Educators & Compliance, said "I understand the need for FHFA to provide liquidity to the industry but this is not the way. By requiring a delivery fee between 5% and 7% with the average loan balance in America at approximately $200,000 would cost most lenders to basically be manufacturing the loan for free, but then pay the agencies to take the loan. This is not really helping the industry or the public.In my opinion, the Federal Reserve has the funds, the Treasury holds the purse strings, the money has already been allocated and is sitting there for the use of FHFA. It should be used to eliminate some confusion and help ease recent overlays by lenders to protect themselves."
“There is no question that GSE purchases will help relieve some of the burden on banks and servicers. Forbearances are growing exponentially," said Jane Mason, CEO of Clarifire, a process automation technology company working with banks and mortgage servicers to complete forbearances and prepare for the onslaught of loan modifications and other workouts. "We are currently processing 15 forbearance requests per minute. One large servicer has completed 80,000 complete forbearances in five weeks, averaging between 3,000-5,000 forbearance requests daily."
Rick Sharga, president and CEO of CJ Patrick Company, commented: "This is a proactive response by the FHFA to the unintended consequences of the government's forbearance program for borrowers whose income has been impacted by the COVID-19 pandemic. Today's announcement will provide much-needed liquidity to the market—albeit at a relatively high cost, for a limited time, and only on what appears to be a relatively small set of loans. That said, this program may be exactly the kind of lifeline lenders need to help them stay afloat while the market goes through waves of disruption."
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