Fannie-Freddie aren’t buying loans of buyers hurt by coronavirus
And banks are tightening credit lines to servicers. That threatens to increase mortgage rates for borrowers.
Fannie Mae and Freddie Mac’s regulator is confronting a fresh crisis for the US housing market: The companies won’t buy recently issued loans that were made to borrowers who already can’t afford their monthly payments because of coronavirus.
Industry executives have told Fannie and Freddie’s watchdog, the Federal Housing Finance Agency, that the issue is causing severe disruptions for the real estate sector because it’s preventing the mortgage giants from guaranteeing new loans in forbearance. In response, an update to Fannie and Freddie’s policies aimed at easing the problem may be announced as soon as this week, said people familiar with the matter who asked not to be named because no changes have been publicly announced.
FHFA spokesman Raphael Williams said the agency is aware of the concerns and is “working to find out the breadth of the issue and possible solutions.’’ He declined to comment on any tweaks being considered.
The dilemma is the latest to emerge from the fact that swaths of homeowners have stopped making their payments because of lost jobs or income. Many borrowers are making use of a provision in last month’s $2 trillion stimulus legislation, which allowed forbearance for consumers with government-backed mortgages who’ve suffered economic hardship due to coronavirus.
Crucial roles
Fannie and Freddie, which have been under government control since the 2008 financial crisis, play a crucial role in the housing market by buying loans from lenders and packaging them into mortgage bonds. Those securities have guarantees that protect investors in case borrowers default.
When borrowers get approved for a loan, it can sometimes take weeks for their lender to sell that mortgage to Fannie or Freddie. During the coronavirus pandemic, lenders say, borrowers are increasingly seeking forbearance after they’ve closed on a new home or refinanced an existing mortgage. Because Fannie and Freddie won’t guarantee such loans, some lenders and home buyers are now in limbo.
Financial executives have been lobbying the FHFA to come up with a solution, arguing that it’s exacerbating liquidity shortfalls for mortgage servicers, firms that collect money from borrowers and funnel payments to investors in mortgage-backed securities. When homeowners go into forbearance, servicers must still advance payments to mortgage-bond investors. They will eventually be reimbursed by Fannie and Freddie, but can face cash crunches while waiting.
‘Rapidly emerging’
Industry executives have said that because Fannie and Freddie aren’t buying newly issued loans that have entered forbearance, banks are tightening credit lines to servicers. That threatens to increase mortgage rates for borrowers over time.
“This is much more widespread than I would have thought,’’ said Edward DeMarco, head of the Housing Policy Council, whose members include Wells Fargo & Co. and Quicken Loans. “This is a rapidly emerging issue,’’ added DeMarco, who previously led the FHFA.
Other groups, including the Washington-based Mortgage Bankers Association, have also pushed for changes.
JPMorgan Chase & Co. is among firms that have recently announced they will be tightening their standards for mortgages.
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