The Federal Housing Finance Agency (FHFA) has announced that it is approving the purchase of certain single-family mortgages in forbearance that meet specific eligibility criteria by Fannie Mae and Freddie Mac (the Enterprises).
“We are focused on keeping the mortgage market working for current and future homeowners during these challenging times," said Director Mark Calabria. “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 Enterprise requirements. However, today'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 Enterprises from these loans. 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.
The FHFA is also instructing the GSEs to main 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.
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.