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Financial Services Law Insights and Observations

Lawmakers urge HUD and FHFA to amend forbearance policies that reduce access to mortgage credit

Federal Issues HUD FHFA Mortgages Mortgage Insurance GSE Fair Lending Fannie Mae Freddie Mac Covid-19

Federal Issues

On June 25, Chairwoman of the House Financial Services Committee, Maxine Waters (D-CA), Chairman of the Subcommittee on Housing, Community Development and Insurance, Wm. Lacy Clay (D-MO), and Congressman Juan Vargas (D-CA) sent a letter to HUD and FHFA calling for amendments to policies which penalize loans that go into forbearance prior to being insured by the Federal Housing Administration (FHA) or purchased by Fannie Mae or Freddie Mac (GSEs). According to the lawmakers, policies put into place prior to the Covid-19 pandemic by HUD and FHFA prohibited loans in forbearance from FHA endorsement or from being purchased by the GSEs. While the agencies amended the policies to allow for FHA insurance and GSE purchases due to the current economic crisis (covered by InfoBytes here and here), the lawmakers claim that lenders are required to pay “significant fees” and “increased costs” for these loans, which results in lenders (i) retaining mortgages that they had no intention, or may not have the capacity to maintain; (ii) paying a steep penalty to the GSEs; or (iii) agreeing to retain additional risk in the case of FHA. As a result, lenders have started limiting loans and access to credit or requiring “credit overlays” that are “disproportionately affecting borrowers of color and other underserved borrowers.” The lawmakers also assert that if a lender retains a loan to avoid a penalty, the loan does not become federally-backed and is consequently ineligible for protections afforded by the CARES Act and other federal regulations. The lawmakers ask that the agencies amend their policies to instead “spread the costs associated with those risks across a broader single-family portfolio,” which will lead to “near-negligible costs” on individual loans and “appropriately balance the need to manage risks to the taxpayer while serving [the] agencies’ missions of promoting access to credit.”

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