As their status as Government Sponsored Enterprises, Fannie Mae and Freddie Mac (the GSEs) have been directed to support goals, products, and programs which expand homeownership to more and more Americans.
However, according to National Consumer Law Center authors Andrea Bopp Stark, Alys Cohen, Steve Sharpe, Geoff Walsh, the Federal Housing Finance Agency (FHFA) and the GSEs may be undercutting these goals beset upon them through the bulk sales of hundreds of thousands of home loans to investors, a switch that ends borrower protections and access to streamlined loss mitigation programs created expressly to help financially struggling homeowners stay in their homes.
For example, as told by the authors, many borrowers harmed by the pandemic who were told they could apply for GSE loss mitigation programs to put their missed payments at the end of the loan were blindsided by a new servicer who explained that those options were no longer available because the new owner of the loan did not offer them. GSE guidelines that describe the loss mitigation options that the buyer of the loan must offer are so vague and weak that they do not ensure meaningful home retention options will be available.
“Especially during the pandemic, the GSEs created effective options to help borrowers avoid foreclosure,” said Andrea Bopp Stark, Staff Attorney from the National Consumer Law Center. “Unfortunately, at the same time, the GSEs were selling loans and stripping pandemic-impacted borrowers of their access to these plans. These sales are particularly concerning because we know borrowers of color were hit hardest by the pandemic.”
During the height of the COVID pandemic, Fannie Mae sold off 99,100 reperforming loans, the highest total for any year.
“In assessing Fannie Mae’s and Freddie Mac’s reports, we saw gaps in the reported data and conclusions based on outdated control groups that do not reflect current market conditions,” said Steve Sharpe, staff attorney from the National Consumer Law Center.
Further hindering things is the lack of accurate, comprehensive data about the outcome of the loans that have been sold to investors. In fact, there is no data publicly available for the more than 545,000 reperforming loans sold so the FHFA and GSEs do not have sufficient data to fully understand what happens to the loans once the loans are sold.
In response to this, the NCLC recommends that the GSEs halt the sale of loans that are currently in forbearance, mandatory borrower loss mitigation reviews, and sufficient homeowner notice. They also recommend that the GSEs offer deferral programs to borrowers who can afford their loan, but not to catch up on payments, retention of current interest rates, post-sale loan modifications, increasing public data reporting, and to update reporting benchmarks to better fit the current real estate environment.