WASHINGTON–The Federal Housing Finance Agency (FHFA) has issued a clarification around the obligations of Fannie Mae and Freddie Mac's servicers to investors during the COVID-19 crisis.
According to the FHFA, servicers are to extend forbearance to homeowners who are experiencing financial distress as the result of the pandemic. Through April 17, approximately 5% of GSE loans had entered forbearance agreements.
At issue has been the fact servicers are contractually required to forward monthly principal and interest payments to mortgage-backed security investors even when homeowners are not making payments on the underlying loans. Concerns have been raised that even though servicers have maintained reserves, the expected high utilization of forbearances may eventually exceed the ability of many companies to keep making the payments, especially smaller companies.
In its updated statement, the FHFA said rules applied to servicers of GSE-backed loans in the case of natural disasters will apply to the declared COVID-19 emergency. Servicers need only advance interest payments for loans that have missed payments for four months, the FHFA said. This brings the obligation limit for Fannie Mae loans and servicers into alignment with the current policy at Freddie Mac.
"The four-month servicer advance obligation limit for loans in forbearance provides stability and clarity to the $5 trillion Enterprise-backed housing finance market," said FHFA Director Mark Calabria. "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 payment."
NAFCU Response
The announcement was welcomed by NAFCU.
“We appreciate the FHFA’s efforts to limit the number of principal and interest payments credit unions and other mortgage servicers must make on behalf of their borrowers in forbearance during the coronavirus pandemic,” said NAFCU President and CEO Dan Berger. “This relief will help ensure credit unions remain safe and sound throughout the pandemic while also freeing up their capital to make needed loans to their members in need of emergency assistance. This is strong, positive and prudent policymaking on behalf of FHFA Director Mark Calabria, and we appreciate the agency working with NAFCU throughout the process.”