FHFA Rescue Mortgage Servicers Liquidity Concerns Due To Pandemic

BREAKING NEWS: FHFA Rescue Mortgage Servicers Liquidity Concerns Due To Pandemic

What are the concerns about the FHFA Rescue Mortgage Serversers pandemic

Included in President Trump’s 2.2 trillion coronavirus pandemic stimulus package was a law that gives homeowners the right to skip and defer mortgage payments for up to one year.

  • The mortgage forbearance clause in the phase three stimulus package allows homeowners affected by the coronavirus pandemic crisis to get a forbearance for six months
  • After six months, the homeowner can request an extension of another six months for a total of one year
  • Unemployment claims for the past three weeks reported at 22 million
  • The updated unemployment numbers for last week are expected to be released Thursday which no doubt be in the millions again
  • The mortgage forbearance clause for homeowners sent the mortgage markets upside down and in chaos
  • Mortgage servicers need to grant homeowners with financial hardship a forbearance up to 12 months
  • During the time of forbearance, the mortgage servicer is still on the hook to pay their investors
  • Servicers also need to pay for property taxes and insurance for borrowers with escrow accounts
  • There was nothing in the stimulus package that helped mortgage servicers
  • This sent the mortgage industry in turmoil
  • Analysts were expecting over 25% of homeowners were going to take up on the mortgage forbearance offer
  • Many mortgage companies saw another 2008 financial crisis and mortgage meltdown coming
  • Breaking news just hit on the announcement by the Federal Housing Finance Agency (FHFA)
  • The good news is FHFA Rescue Mortgage Servicers by only requiring them to advance 4 months of payments to investors on mortgages in forbearance

In this breaking news article, we will cover and discuss FHFA Rescue Mortgage Servicers Liquidity Concerns Due To Pandemic.

FHFA Rescue Mortgage Servicers Brings Relief In The Housing Markets

After the news of homeowners impacted by the coronavirus pandemic was announced, the mortgage servicing industry has been turned upside down and in chaos.

  • Leaders of the mortgage servicing industry have been lobbying Washington for help
  • Mortgage leaders and advocates lobbied the federal government to set up a federal assistance program to implement a liquidity facility
  • Lobbyists warned federal government officials if there is no bailout for mortgage servicers, the country will face a mortgage collapse far worse than the 2008 financial crisis
  • The mortgage industry cannot absorb the massive forbearance request by homeowners due to the pandemic
  • Without a federally backed liquidity facility, the whole mortgage and housing market will sustain a major meltdown
  • Due to this uncertainty, the secondary mortgage bond market shut down for mortgages with borrowers under 680 credit scores
  • Borrowers with credit scores under 680 FICO have been getting a hard time qualifying for mortgage loans
  • There was no demand for any home loans with under 680 credit scores due to liquidity issues. Good news for mortgage servicers
  • The Federal Housing Finance Agency has stepped up to the plate

Mortgage servicers who collect mortgage payments on loans that are backed by Fannie Mae and Freddie Mac can now take a major breather.

The Revival Of The Mortgage Industry During The Coronavirus Pandemic

The housing and mortgage markets were stronger than ever prior to the coronavirus pandemic.

  • The 2020 housing market forecast was supposed to set historic records
  • Millions of homebuyers with pre-approvals shopping for homes have instantly suspended their home buying process
  • Mortgage lenders who have issued pre-approvals have rescinded
  • Most lenders have increased their lending guidelines and increased their credit score requirements
  • When word hit the mortgage markets that secondary market mortgage bond buyers had no more interest in borrowers with under 680 credit scores, this left many borrowers in limbo
  • All non-QM lenders have suspended originating, underwriting, and funding non-QM loans
  • There was no light at the end of the tunnel until there was a relief for mortgage servicers by the federal government
  • Many non-QM lenders have gone out of business
  • Panic started to set in the mortgage industry
  • Home buying was next to impossible with the U.S. economy being shut down
  • The good news is the FHFA has come to the rescue

Massimo Ressa of Gustan Cho Associates said the following:

Rather than setting up a liquidity facility, which would help servicers cover the principal and interest payments they are required to send investors on loans that are in forbearance, the FHFA is changing Fannie and Freddie’s policies to limit the number of payments servicers will be required to make. Under the new policy, servicers will only be required to advance four months of missed payments for loans in forbearance. After that, the servicer is under no further obligation to advance scheduled payments. According to the FHFA, this policy applies to all GSE servicers, whether they are banks or nonbanks. The four-month servicer advance obligation limit for loans in forbearance provides stability and clarity to the $5 trillion Enterprise-backed housing finance market. 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 payments. According to the FHFA, the change actually aligns Fannie Mae’s policies with the ones that Freddie Mac already had in place.

Here’s how the FHFA describes the change:

When a mortgage loan is in a Mortgage-Backed Security (MBS), Fannie Mae servicers with a scheduled payment remittance are responsible for advancing the principal and interest payment regardless of borrower payments. Freddie Mac servicers, who are generally responsible for advancing scheduled interest, 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 Federal Housing Finance Agency is also making other positive changes to help the mortgage industry from collapse. Dale Elenteny of GCA Mortgage Group said the following:

The FHFA is also changing the GSEs’ policies around buying delinquent loans out of mortgage-backed securities. Under the GSEs’ current policies, mortgages that are delinquent for more than four months are purchased out of MBS pools by the GSEs. But, under the new policy, the GSEs will keep loans in forbearance in their respective MBS pools for at least the duration of the forbearance plan.  According to the FHFA, the change to the MBS buyback policy “clarifies that mortgage loans with COVID-19 payment forbearance shall be treated like a natural disaster event and will remain in the MBS pool. The FHFA said that this change reduces the potential liquidity demands on the Enterprises resulting from loans in COVID-19 forbearance and delinquent loans.  In a statement, the FHFA said that both it and the GSEs will “continue to monitor the impact of the coronavirus national emergency on the housing finance market” and will update their policies “as necessary. The Mortgage Bankers Association welcomed the change but reiterated its call for a liquidity facility. MBA welcomes today’s announcement from FHFA that caps mortgage servicers’ advancing obligations at four months for Fannie Mae single-family loans, effectively mirroring Freddie Mac’s requirements. This is an important step in reducing the maximum liquidity demands for servicers who are providing mortgage payment forbearance for borrowers who have a pandemic-related hardship, and we appreciate FHFA’s action. While this news reduces servicers’ worst-case cash flow demands considerably, we continue to stress the need for Treasury and the Federal Reserve to create a liquidity facility for those servicers who need it in order to continue to make payments to investors, municipalities, and insurers on behalf of borrowers who have been granted forbearance required under the CARES Act.

More good news was the news that many states are going to reopen the economy. With the country reopening the economy, this means people are returning back to work. There is no known date as of when the U.S. economy will return back to the pre-coronavirus pandemic days. However, under the leadership of President Trump and his administration, many are optimistic. More and more unemployed Americans will be returning to work. More and more homebuyers will start shopping for homes. The mortgage industry will return to normalcy.

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