The Federal Housing Finance Agency (FHFA) announced the alignment of Fannie Mae's and Freddie Mac's (the Enterprises) policies regarding servicer obligations to advance scheduled monthly principal and interest payments for single-family mortgage loans.
The 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 policy applies to all GSE servicers.
“The four-month servicer advance obligation limit for loans in forbearance provides stability and clarity to the $5 trillion Enterprise-backed housing finance market," said FHFA Director Dr. Mark A. Calabria. “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 release states that when a mortgage is in a mortgage-backed security (MBS), Fannie Mae servicers with a scheduled payment are responsible for advancing the principal and interest payment regardless of borrower payments.
Freddie Mac servicers are only obligated to advance four months of missed borrower interest payments. Today's instruction establishes a four-month advance obligation limit for Fannie Mae scheduled servicing for loans and servicers which is consistent with the current policy at Freddie Mac.
The FHFA is also instructing the GSEs to maintain loans in COVID-19 forbearance plans in MBS pools for at least the duration of the forbearance plan.
Mortgages that are delinquent for more than four months, historically, were purchased out of MBS pools by the GSEs. Loans with COVID-19 payment forbearance shall be treated “like a natural disaster event” and will remain in the MBS pool.
The FHFA says this change reduces the potential liquidity demands on the GSEs from loans in forbearance and delinquent loans.
David M. Dworkin, President and CEO, National Housing Conference, said the announcement by the FHFA is an "important first step."
"Ensuring servicers can move payments to the end of the loan term and get reimbursed in four months is progress," he said. "But requests by consumers for help in paying their home mortgages are already very high and growing. That is no surprise given the skyrocketing unemployment numbers. As forbearance requests continue to rise, we will have to do more.
Dworkin added that the federal government should not hesitate to support the nation's housing finance system, so mortgage providers can continue helping at-risk homeowners.
"Without that support, a deteriorating situation in housing and homeownership will increase the likelihood of a COVID-19 recession becoming a depression," Dworkin said.
A report by Black Knight states that as of April 16, more than 2.9 million homeowners, or 5.5% of all mortgages, have entered into COVID-19 mortgage forbearance plans.
This population represents $651 billion in unpaid principal and includes 4.9% of all GSE-backed loans and 7.6% of FHA/VA loans.
A new survey by the Mortgage Bankers Association (MBA) found that the number of home loans in forbearance rose from 2.73% to 3.74% during the week of March 30 to April 5.
Mortgages backed by Ginnie Mae had the largest weekly growth of 1.58% and the highest overall share in forbearance requests (5.89%).