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FHFA: Fannie, Freddie to temporarily buy mortgages in forbearance due to Covid-19
On April 22, the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac (GSEs) will purchase “certain single-family mortgages in forbearance that meet specific eligibility criteria” for a limited period in an effort to provide liquidity to ensure continued lending. Current policies dictate that the GSEs do not purchase loans that are in forbearance; however, due to the economic effects of Covid-19, FHFA will begin allowing the GSEs to buy certain mortgages that enter forbearance within the first month after loan closing, prior to delivery to the GSEs. The temporary selling requirements in Freddie Mac Bulletin 2020-12 allow lenders to sell to the GSE mortgages in forbearance only on mortgages for home purchases or “no cash-out” mortgage refinances. Further, the mortgages must have note dates between February 1, 2020 and May 31, 2020, the dates of settlement must be after May 1, and the mortgages must not be more than 30 days delinquent. Fannie Mae Lender Letter 2020-06 follows most of the same guidelines provided in the Freddie Mac bulletin, but Fannie Mae will also buy mortgages for limited cash-out refinances. To limit losses, the GSEs will charge sellers loan-level price adjustments of 5 percent for loans to first-time homebuyers, and 7 percent for all others.
FHFA: Servicers obligated to advance only four months of payments on loans in forbearance
On April 21, the Federal Housing Finance Agency (FHFA) announced it has aligned Fannie Mae’s and Freddie Mac’s (GSEs) “policies regarding servicer obligations to advance scheduled monthly principal and interest payments for single-family mortgage loans.” The plan, which is applicable to all GSE servicers regardless of type or size, limits servicers’ obligations to advance scheduled principal and interest payments to mortgage-backed securities (MBS) investors after a servicer has advanced four months of missed borrower payments on a loan. FHFA further clarifies that loans in forbearance due to Covid-19 will not be purchased out of MBS pools by the GSEs, but will instead “be treated like a natural disaster event and will remain in the MBS pool,” reducing potential liquidity demands on the GSEs. FHFA notes that both the agency and the GSEs will continue to monitor Covid-19’s impact on the housing finance market and will make policy updates as necessary.
Fannie and Freddie extend URLA implementation timeline
On April 14, Fannie Mae and Freddie Mac issued a joint statement to announce that—due to the Covid-19 pandemic—the effective date of the revised Uniform Residential Loan Application (URLA) and Automated Underwriting Systems—is extended to January 1, 2021. Lenders must begin use of the redesigned URLA by March 1, 2021, and the current URLA will be retired on March 1, 2022. The revised URLA implementation timeline may be found here. Additional URLA information may be found on Fannie Mae’s URLA FAQs web page here, and on Freddie Mac’s URLA web page here.
Additional InfoBytes coverage on URLA can be found here.
Freddie Mac issues bulletin on servicing requirements and relief related to Covid-19
On March 25, Freddie Mac released Bulletin 2020-7, which sets forth servicing requirements and relief related to Covid-19 for Freddie Mac servicers. The bulletin does the following: (i) requires servicers to report to Freddie Mac any borrower who has a Covid-19 related hardship using a specific default reason code; (ii) provides temporary relief from certain property inspection and property preservation requirements; (iii) clarifies requirements for streamlined Flex Modification evaluations for borrowers with a Covid-19-related hardship, including outreach techniques; (iv) extends the current reporting deadline for annual certifications and delivery of financials from March 31, 2020, to April 30, 2020; (v) provides guidance on the use of electronic records and signatures in connection with the origination and closing process; and (vi) sets forth expectations regarding seller and servicer business continuity plans.
Fannie, Freddie develop payment deferral program
On March 25, Fannie Mae announced the release of a new payment deferral program developed with Freddie Mac at the direction of the FHFA. Fannie Mae issued Lender Letter LL-2020-05 and Freddie Mac issued Bulletin 2020-6 to introduce the new workout option which “enables servicers to assist eligible borrowers who have resolved a temporary hardship and resumed their monthly contractual payments but cannot afford either a full reinstatement or repayment plan to bring the loan current.” The lender letter and the bulletin cover, among other things: (i) criteria necessary to be eligible for a payment deferral; (ii) terms of payment deferral; (iii) steps to complete a payment deferral; (iv) applicable fees; (v) reimbursement for expenses; and (iv) servicer incentive fees. Servicers may begin to evaluate borrowers for the deferral payment program on July 1, but no later than January 1, 2021.
Fannie Mae announces changes to origination requirements
On March 23, Fannie Mae issued Lender Letter LL-2020-03 addressing the impact of Covid-19 on Originations. The letter (i) establishes permissible alternatives to the verbal verification of employment requirement; (ii) encourages lenders to “practice additional due diligence” with respect to continuity of income to ensure most recent information is obtained; (iii) extends the deadline for lender submission of financial statements and Form 582 until April 30, 2020; (iv) reiterates the requirements to maintain the original copy of the promissory note and to obtain an original, non-electronic signature on promissory notes unless originated as an electronic note; (v) addresses title insurance consequences of recording office closures; and (vi) reminds lenders to follow their business continuity and resiliency plans.
Fannie Mae announces flexibility with appraisals
On March 23, Fannie Mae issued Lender Letter 2020-04 announcing temporary flexibilities to its appraisal requirements. These include allowing exterior-only or desktop appraisals when an interior appraisal is not feasible because of Covid-19 concerns, subject to specified terms. The letter also announced modified forms, developed jointly with Freddie Mac, to be used with desktop and exterior-only appraisals.
FHFA authorizes GSEs to support additional liquidity in the secondary mortgage market
On March 23, FHFA announced that is has authorized Fannie Mae and Freddie Mac to enter into additional dollar roll transactions, which provide MBS investors with short-term financing of their positions, to help support immediate needs for liquidity in the secondary mortgage market. Eligible collateral is limited to Agency MBS and the transactions must be undertaken via an auction or similar mechanism to ensure that they occur at a fair market price.
FHFA directs enterprises to grant flexibilities for appraisal and employment verifications
On March 23, FHFA directed Fannie Mae and Freddie Mae to provide alternative flexibilities for lenders to satisfy appraisal and employment verification requirements through May 17, 2020.
Fannie Mae issues multifamily investor communication regarding Covid-19
On March 20, Fannie Mae published responses to frequently asked questions related to the impact of Covid-19 on Multifamily MBS and CRT programs. Among other things, the responses clarified that for loans granted forbearance due to Covid-19, Fannie Mae “will continue to advance principal and interest payments on the MBS for at least 120 days and may choose to advance for up to two years before being required to buy the mortgage loan out of the MBS trust.” With respect to the CRT program, Fannie Mae reiterated its commitment to take proactive loss mitigation measures to reduce the likelihood and severity of any losses for any loan that indicates an increased risk of default.