Key Highlights
- Federal Housing Finance Agency (FHFA) announced Fannie and Freddie to buy loans that in government’s forbearance program just after the homes close
- This policy shift designed to help lenders replenish liquidity and keep lending
Like many things now happening for the first time, Fannie Mae and Freddie Mac are to buy homes loans that go into the government‘s forbearance program just after these homes close. This is a major policy shift announced by Mark Calabria, director of the Federal Housing Finance Agency (FHFA) charged with regulating Fannie and Freddie.
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Calabria said, “We are focused on keeping the mortgage market working for current and future homeowners during these challenging times. Purchases of these previously ineligible loans will help provide liquidity to mortgage markets and allow originators to keep lending.”
Here are the eligibility requirements and limits underpinning this new “buy” policy, according to the FHFA:
- Mortgage loan must have closed on/after February 1, 2020 and on/before May 31, 2020
- Loan must be either mortgage purchase transaction or no-cash-out refinance
- Loan cannot be delinquent for more than 30-days
- Loans to be assessed additional loan-level price adjustment of 5% for first-time buyers and 7% for repeat buyers
Higher loan costs could impact mortgage rates by either…
- Causing rates to drop slightly
- Causing lenders to pass along costs to borrowers via higher rates
How are the government’s forbearance program (allowing COVID-economically challenged borrowers to delay monthly home payments up to one year) and Fannie or Freddie now related?
In the last month, over 3M home loans have been accepted into the government forbearance program. Fannie and Freddie, prior to this policy shift, couldn’t buy those homes that had just closed and lenders were “stuck” and on the hook for those loans because lenders couldn’t sell them. Lender liquidity plummeted and lenders drastically tightened credit. Now, with this policy shift, Fannie Fannie and Freddie can buy those homes in forbearance, thus freeing up liquidity so borrowers can get new loans.
Generally, industry experts endorse this policy shift. Bob Broeksmit, CEO of the Mortgage Banker’s Association (MBA), said, “We welcome the change in policy that directs the GSEs to purchase most loans in forbearance. We are looking forward to working with the FHFA and the GSEs (Fannie Mae and Freddie Mac) to arrive at more appropriate pricing and broad coverage for all transaction types.”
At this point in time, the future tense of the verb “to buy” is being used…”will be buying…” We’ll let you know when Fannie and Freddie are buying.
Thanks to CNBC and HousingWire.
Also read: Podcast: Good News For Housing And Economy? | Top 5 Headlines Worth Celebrating, No Servicer Liquidity Coming But GSEs May Instigate Servicing Transfers, “The Economy is Clearly in Ruins Here”
