FHFA Announces Relief Program for Mortgage Firms as Numbers Spike on Home Loans in Forbearance

Pressure on mortgage companies that provide home loans will get some relief from the Federal Housing and Finance Agency (FHFA) according to the April 22nd press release by the independent federal agency. Since the bilk of today’s U.S. home loans are made by nonbank service companies, which reportedly don’t have the capital and liquidity buffers that banks do, they have been lobbying the federal government for a lending facility to help the industry group. To provide relief to building owners with federally-back mortgages, the FHFA released guidance back on March 23rd announcing that the “Fannie Mae and Freddie Mac (the Enterprises) will offer multifamily property owners mortgage forbearance with the condition that they suspend all evictions for renters unable to pay rent due to the impact of coronavirus for the entire duration of time that a property owner remains in forbearance.” Since the service companies still remain obligated to pay their mortgage-bond investors on time, they have been facing mounting cash flow pressure as homeowners with federally-backed mortgages seek forbearance due to the economic disruption of COVID-19 according to reports. The nationwide volume of home loans in forbearance in servicers’ portfolios reportedly reached 5.95% for the week ending April 12th, representing a 59% increase of the 3.74% one week prior according to reported Mortgage Bankers Association data.

Since the widespread health crisis, the number of new mortgage and refinanced home loan borrowers seeking forbearance has been rising

Since the widespread health crisis, the number of new mortgage and refinanced home loan borrowers seeking forbearance has been rising, even before they have reportedly made the first payment; and because the Enterprises won’t guarantee such loans “banks are tightening credit lines on mortgage companies that rely on those funds to extend credit to consumers,” which “threatens to increase mortgage rates for borrowers over time.” Although the creation of a liquidity facility had reportedly been considered, the FHFA ultimately announced its approval of the “purchase of certain single-family mortgages in forbearance that meet specific eligibility criteria by Fannie Mae and Freddie Mac,” by lifting the normal restriction of their ineligibility for a limited period of time, thereby helping to provide liquidity to mortgage markets and allow originators to keep lending. FHFA’s announcement further stipulates that “eligible loans will also be priced to mitigate the heightened risk of loss to the Enterprises from these loans.” Although the mortgage industry reportedly welcomed the news, there are concerns that the range of 5% to 7% in fees associated with the purchase are too high; and “may be too cost-prohibitive for many credit unions and limit affordable loan options for home buyers,” per reported statements by a spokesperson for the National Association of Federally Insured Credit Unions.