Mortgage Guidelines After Forbearance Due To COVID-19 Pandemic

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BREAKING NEWS: Mortgage Guidelines After Forbearance Due To COVID-19 Pandemic
What are the guidelines for mortgages after Forbearance due to the COVID-19 pandemic?

Many borrowers were concerned with Mortgage Guidelines After Forbearance Due To COVID-19 Pandemic. Some of the common questions about Mortgage Guidelines After Forbearance Due To COVID-19 Pandemic were the following:

  • Are you able to refinance after your forbearance?
  • Are you able to qualify for a home purchase mortgage after forbearance?
  • Is there a waiting period requirement before you are able to obtain a mortgage after forbearance?

In this breaking news article, we will discuss and cover Mortgage Guidelines After Forbearance Due To COVID-19 Pandemic.

Waiting Period Mortgage Guidelines After Forbearance

The coronavirus pandemic created havoc on the once thriving U.S. economy.

  • Millions of Americans were forced out of work due to the millions of businesses being closed
  • Just prior to the pandemic in March, the U.S. economy was booming
  • Unemployment rate was under 3.5% which is the lowest unemployment rate ever in the history of the U.S.
  • The Dow Jones Industrial Average surpassed the 29,000 mark in February 2020
  • Values of 401k’s were up over 50% for most Americans due to the skyrocketing stock market under the Trump Administration
  • Then the COVID-19 pandemic hit like a firestorm
  • The economy closed overnight
  • 39 million Americans have filed unemployment claims just in the past 8 weeks
  • President Trump signed the $2.2 trillion coronavirus CARES Act stimulus package into law
  • Included in the CARES Act was the right for unemployed homeowners to get forbearance for six months and extended up to one year
  • However, many struggling homeowners were hesitant in taking up on the forbearance offer due to the consequences
  • Will there be a waiting period to qualify for a mortgage if the borrower takes up on the forbearance offer?
  • Can borrowers qualify for a mortgage after forbearance?
  • Can you purchase a home after forbearance without a waiting period?

Many borrowers were getting conflicting answers about the Mortgage Guidelines After Forbearance.

Main Concerns On Mortgage Guidelines After Forbearance

Many homeowners want to take up on the forbearance offer of the CARES Act.

  • However, homeowners are getting conflicting answers by lenders
  • Some are being told there is a one year waiting period after forbearance to be able to qualify for a government and/or conventional loan
  • Others are being told there is a one year waiting period after forbearance to qualify for a government loan and a four year waiting period to qualify on conventional loans
  • There are mandatory waiting period to qualify for government and conventional loans after bankruptcy, foreclosure, deed in lieu of foreclosure, short sale, and a loan modification
  • There is a one year waiting period to qualify for a government loan after a loan modification
  • There is a four year to qualify for a mortgage after a loan modification
  • However, a forbearance is different than a loan modification

In the next paragraph we will discuss the actual waiting period requirement to qualify for a mortgage after forbearance.

Waiting Period Guidelines For GSE Borrowers In Forbearance

GSE Borrowers In Forbearance can purchase and/or refinance after meeting the minimum waiting period requirements.
  • Borrowers who had taken up the CARES Act forbearance offer may be eligible to purchase and/or refinance their current mortgage three months after their mortgage forbearance period ends and have made three timely payments after the forbearance
  • Borrowers need to have been timely with their monthly repayment plan for three consecutive months with no late payments in order to be eligible to qualify for a government and/or conforming loan per Fannie Mae and Freddie Mac Agency Guidelines
  • This new updated Mortgage Guidelines After Forbearance was announced by the Federal Housing Finance Agency
  • The FHFA specifically states how mortgage lenders should treat in accepting borrowers after the forbearance period is over on federally-backed mortgages

Mark Calabria, Director of the Federal Housing Finance Agency made the following statement:

Homeowners who are in COVID-19 forbearance but continue to make their mortgage payment will not be penalized. Today’s action allows homeowners to access record low mortgage rates and keeps the mortgage market functioning as efficiently as possible. The $2 trillion CARES Act comes with significant benefits for homeowners who are unable to make their mortgage payments, most notably a moratorium on foreclosures and the right to forbearance. Forbearance allows borrowers with a federally backed mortgage to put off payments for at least six months if they suffer economic hardship during the pandemic.
According to data released by the Mortgage Bankers Associations, 8.16% percent of federally-backed mortgages went into forbearance as of May 10th, 2020. This number is an increase from 0.25% in March. Forbearance numbers is expected to increase in the days and weeks to come.

Chaos In The Mortgage Secondary Bond Market Due To The CARES ACT 

The coronavirus pandemic has created major chaos in the mortgage markets.
  • However, what caused more uncertainty in the mortgage secondary bond market was the CARES ACT
  • Under the CARES ACT, lenders need to give financially stressed homeowners a mortgage forbearance
  • What this means is unemployed homeowners can skip their mortgage payments up to six months and can extend it up to one year
  • This caused havoc on the mortgage markets
  • Even though borrowers get to skip mortgage payments, mortgage servicers still need to pay investors the monthly mortgage payments
  • Servicers also need to pay property taxes and insurance from borrowers with escrow accounts
  • This scared off mortgage-backed securities investors on the secondary market
  • This automatically triggered no demand for mortgages with under 700 credit score borrowers
  • There is no demand on the secondary mortgage bond market for borrowers with under 700 credit scores
  • This is what triggered most lenders to increase their lender overlays across the board
  • Most lenders have increased FHA and VA loan credit score requirements to 660 to 680 FICO
  • Many lenders such as JP Morgan Chase have stopped taking FHA loan applications altogether
  • Chase Mortgage will only take conventional loan applications for borrowers with at least 700 credit scores and 20% down payment
A flood of forbearance by homeowners without federal bailout for lenders will bankruptcy the overall mortgage markets and may cause another mortgage crisis and meltdown worse than the 2007 financial crisis.

FHFA Announces Relief For Mortgage Lenders In Buying Mortgage Loans Under Forbearance 

The good news is the Federal Housing Finance Agency (FHFA) announced Fannie Mae and Freddie Mac will start buying mortgages whose borrowers are in forbearance. This is relief for lenders.

Massimo Ressa of GCA Mortgage Group said the following after hearing the breaking news:

Fannie and Freddie are now able to buy the loans with note dates on or before June 30, as long as they are delivered to the Enterprises by August 31 and where only one mortgage payment has been missed. The previous policy was set to expire at the end of this month. FHFA originally implemented the policy in April in response to borrowers seeking mortgage forbearance shortly after closing on loans – and before the lender could deliver the loan to Fannie or Freddie. Prior to the change, loans in forbearance were ineligible to be sold under Fannie and Freddie requirements, placing the borrower and the lender in jeopardy. This provides much-needed clarity for borrowers, mortgage lenders, and servicers. We also commend FHFA for extending the GSEs’ previous policy on purchasing single-family mortgages in forbearance. These welcome moves ensure that homeowners who continue to make on-time payments – and those who have successfully exited forbearance – can benefit from near record-low mortgage rates. It also keeps the mortgage market functioning efficiently and helps ease current credit availability constraints.

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The move by the FHFA in requiring Fannie Mae and Freddie Mac to purchase mortgages in forbearance secures a stable housing market. By doing so, it will stop a national mortgage crisis and meltdown. It will also ease tensions for investors and promote investors to purchase mortgage-backed securities at all credit levels and tiers. It will keep the home purchase and refinance market stable where homebuyers and homeowners can qualify for purchase and refinance mortgages. Furthermore, homeowners who undergo a financial hardship due to the economic impact of the coronavirus pandemic should not be penalized by taking advantage of the CARES Act mortgage forbearance program. The U.S. economy is bruised and may take a long time to recoup and return to normalcy. The real estate and mortgage industry is one-fifth of the national GDP of the United States. The mortgage industry plays a pivotal role in the economic recovery of the United States.

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