In a statement released on April 21, 2020, the Federal Housing Finance Agency (FHFA) announced that mortgage servicers would only be required to advance four months of missed payments for Fannie Mae and Freddie Mac owned loans on CARES Act forbearance plans. After that four-month period, FHFA explained the servicers would be under “no further obligation to advance scheduled payments.” Importantly, this policy applies both to bank and nonbank servicers.
Servicers for Fannie Mae owned loans with a scheduled payment remittance generally must advance the principal and interest payment regardless of borrower payments. Freddie Mac servicers are only obligated to advance four months of missed borrower interest payments. FHFA’s announcement described the new limit for Fannie Mae loans as “consistent with the current policy at Freddie Mac.” The new limitation aligns with the opinion of Mark Calabria, director of FHFA, whose expectation is that “the overwhelming majority of people who take forbearance will be for two or three months and not 12 months.” Of course, the CARES Act permits borrowers with federally backed loans to forbear their payments up to 12 months with only an attestation as to financial distress caused in whole or part by COVID-19.
Calabria explained, “[t]he four-month servicer advance obligation limit for loans in forbearance provides stability and clarity to the $5 trillion Enterprise-backed housing finance market” and “[m]ortgage 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.”
This relief from FHFA is critical as nearly three million homeowners (almost 6% of all home loans) have already sought forbearances, and the industry expects those numbers to continue to climb.
The Mortgage Bankers Association (MBA) commented that FHFA’s announcement “is an important step in reducing the maximum liquidity demands for servicers who are providing mortgage payment forbearance for borrowers who have a pandemic-related hardship, and we appreciate FHFA’s action.” The MBA reiterated, however, “the need for Treasury and the Federal Reserve to create a liquidity facility for those servicers who need it in order to continue to make payments to investors, municipalities, and insurers on behalf of borrowers who have been granted forbearance required” by the CARES Act.