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FHA issues underwriting guidelines on prior forbearances
On September 10, FHA released Mortgagee Letter 2020-30, which discusses FHA’s underwriting guidelines for mortgages involving borrowers who were previously granted a forbearance. The letter notes that FHA is “expanding its underwriting guidelines” to address situations in which borrowers are seeking new FHA insured financing after being granted a forbearance, due to either a Presidentially Declared major disaster or some other hardship, including the Covid-19 pandemic. The letter specifies that a borrower will be eligible for a new FHA insured mortgage after being granted a forbearance if, among other things, (i) the borrower continued to make regularly scheduled payments and the forbearance plan is terminated; or (ii) for cash-out refinances, the borrower has completed the forbearance and has subsequently made 12 consecutive monthly payments; or (iii) for purchases and no cash-out refinances, the borrower has completed the forbearance and has subsequently made at least three consecutive monthly payments; or (iv) for “Credit Qualifying Streamline” refinances, the borrower has completed the forbearance and has subsequently made less than three consecutive monthly payments; and (v) for all “Streamline refinance” transactions, the borrower has made at least six payments on the FHA insured mortgage being refinanced.
FHA requires the new underwriting guidelines be implemented for all case numbers assigned on or after November 9.
Agencies extend foreclosure moratorium and other Covid-19 flexibilities
On August 27, Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac will extend their moratorium on single-family foreclosures and real estate owned (REO) evictions until at least December 31 (which was set to expire on August 31, previously covered here). The foreclosure moratorium applies to homeowners with an Enterprise-backed, single-family mortgage and the REO eviction moratorium applies to properties that were acquired by the GSEs through foreclosure or deed-in-lieu of foreclosure transactions.
FHA also further extended its foreclosure and eviction moratorium through December 31 (also set to expire on August 31 and previously covered here). The moratorium applies to homeowners with FHA-insured Title II Single Family forward and Home Equity Conversion (reverse) mortgages, excluding legally vacant or abandoned properties (previously discussed here and here). Additional details can be found in Mortgagee Letter 2020-27.
Additionally, on August 26, FHFA announced an extension of a temporary policy that allows Fannie Mae and Freddie Mac (GSEs) to purchase qualified single-family mortgages in forbearance that meet specific eligibility criteria due to the Covid-19 pandemic. The policy is now extended for loans originated through September 30. As previously covered by InfoBytes, in an effort to provide liquidity to ensure continued lending during the Covid-19 pandemic, FHFA is allowing the GSEs to buy certain mortgages that enter forbearance within the first month after loan closing, prior to delivery to the GSEs.
FHFA also extended several loan origination flexibilities put in place to assist borrowers during the Covid-19 pandemic. Specifically, FHFA has further extended until September 30, the following provisions: “(i) alternative appraisals on purchase and rate term refinance loans; (ii) alternative methods for documenting income and verifying employment before loan closing; and (iii) expanding the use of power of attorney to assist with loan closings.”
Fannie Mae issues Covid-19-related selling updates
On August 12, Fannie Mae updated its Covid-19 frequently asked questions regarding the underwriting and loan eligibility for sellers. Fannie Mae’s FAQs (previously discussed here) were updated to address questions on selling loans in forbearance. The FAQs cite to Lender Letter 2020-06 (covered by InfoBytes here), stating that Fannie Mae will purchase loans that go into forbearance after loan closing before sale that became eligible for sale beginning May 1 and have note dates on or before August 31 and are delivered by October 31. Additionally, the FAQs state there are no plans to further extend the August 31 date.
FHFA announces that multifamily property owners in forbearance must inform tenants of tenant protections
On August 6, the Federal Housing Finance Agency (FHFA) announced that multifamily property owners with mortgages backed by Fannie Mae or Freddie Mac (the Enterprises) who enter into a new or modified forbearance agreement must inform tenants in writing about tenant protections during the multifamily property owner's forbearance and repayment periods. Landlords with Enterprise-backed mortgages can enter new, or if qualified, modified forbearance if they experienced or continue to experience a financial hardship due to the Covid-19 emergency. While in forbearance, the property owners must agree not to evict tenants solely for the nonpayment of rent. The announcement notes that the Enterprises are modifying online multifamily property loan look-up tools to make it easier for tenants to find the tenant protections and to find out if the multifamily property in which they reside has an Enterprise-backed mortgage.
FHFA extends policy allowing GSEs to buy mortgages in forbearance
On July 31, the Federal Housing Finance Agency (FHFA) announced an extension of a temporary policy that allows Fannie Mae and Freddie Mac (GSEs) to purchase “certain single-family mortgages in forbearance that meet specific eligibility criteria” due to the Covid-19 pandemic. The temporary policy is extended for loans originated through August 31 from the original deadline of May 31. As previously covered by InfoBytes, standard policies dictate that the GSEs do not purchase loans that are in forbearance; however, due to the economic effects of Covid-19, and in an effort to provide liquidity to ensure continued lending, FHFA allowed the GSEs to buy certain mortgages that enter forbearance within the first month after loan closing, prior to delivery to the GSEs. The extension of the policy is reflected in Fannie Mae’s updated Lender Letter 2020-06 and Freddie Mac’s Guide Bulletin 2020-30.
House hearing on mortgage servicers’ implementation of CARES Act
On July 16, the House Financial Services Committee’s Subcommittee on Oversight and Investigations held a hearing entitled “Protecting Homeowners During the Pandemic: Oversight of Mortgage Servicers’ Implementation of the CARES Act.” The subcommittee’s memorandum regarding the hearing discussed, among other things, the HUD Office of Inspector General’s report of its review of the type of forbearance information accessible to borrowers on the top 30 mortgage servicers’ websites. The report highlighted concerns that 10 of the servicers failed to have forbearance information “‘readily available’ on their websites,” 14 servicers’ websites did not provide information about the length of the forbearance period to which borrowers are entitled under the CARES Act, and certain servicers “included information giving the impression that lump sum payments were required at the end of the forbearance period.”
Witnesses discussed widespread issues in CARES Act-related mortgage servicing, with several witnesses and lawmakers highlighting how preexisting inequalities have especially imperiled black and Latinx home ownership during the Covid-19 pandemic. One witness suggested that servicers should be required to provide written notice to borrowers of their options and rights under the CARES Act and should be held accountable for failing to provide consistent, accurate forbearance information to borrowers in a timely manner. Another witness noted that housing counselors have reported servicers providing misinformation on payment and deferral options, and stressed the need for coordinated efforts between the CFPB, FHFA, and HUD, in addition to strong supervisory and enforcement activity.
Other topics discussed during the hearing included (i) the importance of providing clear guidance for borrowers, as well as the importance of loan modifications, loss mitigation options, and long term solutions once forbearance has ended; (ii) understanding what servicers of non-federally backed mortgages not covered by the CARES Act are doing to assist borrowers, and whether there should be a safe harbor for these mortgage servicers from investor liability; and (iii) the CFPB’s responsibility for overseeing servicers. One of the witnesses noted during the hearing, however, that many mortgage servicers offered homeowners forbearance options before the CARES Act, provided forbearance to homeowners with non-federally backed mortgages, and have responded to “an evolving series of program and regulatory announcements from various programs and agencies.”
Fannie Mae updates Lender Letter 2020-02 to address impact of Covid-19 on disbursing insurance loss proceeds and HAMP incentives.
On July 15, Fannie Mae updated Lender Letter 2020-02 to include information on servicer requirements related to disbursing insurance loss proceeds for borrowers impacted by Covid-19 as well as Home Affordable Modification Program (HAMP) “Pay for Performance” incentives. For purposes of disbursing insurance loss proceeds, the servicer must consider a loan to be current or less than 31 days delinquent if the borrower has experienced a Covid-19 related hardship and certain criteria are met. Separately, the guidance clarifies the impact of Covid-19 on HAMP “Pay for Performance” incentives. Specifically, the mortgage loan does not lose good standing and the borrower will not lose any “pay for performance” incentives if the borrower (i) immediately reinstates the mortgage loan upon expiration of the Covid-19 related forbearance plan or (ii) transitions directly from a Covid-19 related forbearance plan to a repayment plan.
Fannie Mae announces updated protections for renters and multifamily property owners impacted by Covid-19
On June 29, Fannie Mae announced updated protections for renters in multifamily units and multifamily property owners impacted by Covid-19. Fannie Mae’s Delegated Underwriting and Servicing lenders have the authority to extend existing forbearances by three months for multifamily property owners, for a total period of up to six months. If extended, at the conclusion of the forbearance period, the borrower may qualify for up to 24 months to repay the missed payments. For Fannie Mae-financed multifamily properties with a new or extended forbearance, the borrower is required to provide certain tenant protections during the repayment period, including allowing the tenant flexibility to repay back rent over time and giving the tenant at least a 30-day notice to vacate.
Fannie Mae modifies non-depository seller/servicer liquidity requirements
On June 24, Fannie Mae updated Lender Letter 2020-02 to temporarily modify the minimum liquidity requirements for non-depository institutions. Beginning with the financial quarter ending on June 30, 2020, the Agency Seriously Delinquent Mortgage Rate will include an adjustment for mortgage loans in a Covid-19-related forbearance plan that are 90 days or more delinquent but were current at the start of the Covid-19-related forbearance plan. The letter notes that the Mortgage Bankers Financial Reporting Form will be modified by June 30 to capture forbearance activity.
Freddie Mac modifies non-depository seller/servicer financial liquidity requirements
On June 24, Freddie Mac issued Bulletin 2020-24, which modifies the financial liquidity requirements for non-depository institutions. Specifically, the liquidity requirement is amended to take into account forbearances granted in association with Covid-19. Previously, the liquidity calculation was based in part on a premium on the amount of servicing for loans that are nonperforming (at least 90 days delinquent). The calculation now takes into account loans a lesser percentage with respect to forbearance loans that were current at the time they entered forbearance. For purposes of the liquidity requirement, if a mortgage exits forbearance during a calendar quarter, it will continue to be treated as being in forbearance until the end of that quarter for purposes of the liquidity requirement. The liquidity updates are effective on June 30, 2020.