WASHINGTON — The Federal Housing Finance Agency will allow Fannie Mae and Freddie Mac to buy single-family home loans in forbearance in an effort to keep the mortgage market running smoothly as the coronavirus has caused lenders to tighten standards.
Originators have been wary of underwriting a mortgage only to learn the borrower has sought forbearance before the lender has had a chance to sell the loan to Fannie and Freddie. The two mortgage giants historically have not accepted loans in forbearance.
That has resulted in stricter underwriting standards at some lenders,
But amid COVID-19, loans in forbearance will temporarily be eligible for the government-sponsored enterprises to purchase in order to “help provide liquidity to mortgage markets and allow originators to keep lending,” FHFA Director Mark Calabria said in a statement. The move comes weeks after the FHFA and lawmakers authorized cash-strapped borrowers to seek forbearance plans of up to one year for federally backed loans.
“We are focused on keeping the mortgage market working for current and future homeowners during these challenging times,” Calabria said.
The eased restriction will only be available for “a limited period of time,” the FHFA said.
For a mortgage in forbearance to be eligible to be purchased by Fannie and Freddie, a loan must have been closed between Feb. 1 and May 31 and cannot be delinquent for more than 30 days. Cash-out refinances will not be eligible, Fannie and Freddie said on their websites.
Eligible mortgages will also be priced at a level commensurate with their risk in order to “mitigate the heightened risk of loss” to the GSEs, the FHFA said.
Fannie and Freddie said that they would impose an additional loan-level price adjustment on eligible mortgages: 5% for first-time homebuyers and 7% for non-first-time homebuyers.
