On April 22nd, the Federal Housing Finance Agency (FHFA) announced the joint alignment of Fannie Mae and Freddie Mac’s policies regarding COVID-19 forbearance plans. These government entities commonly referred to as the “Enterprises,” made this decision regarding mortgage servicer obligations to advance scheduled monthly principal and interest payments for homeowners of single-family mortgage loans.
What does this mean for homeowners that have a mortgage via one of these government agencies? It means that after a servicer has advanced four months of missed payments on a loan, it will have no further obligation to advance additional scheduled payments post the initial four months. This applies to all Enterprise mortgage servicers regardless of their type or size. These instructions establishes a four-month advance obligation limit for Fannie Mae scheduled servicing for loans and for other mortgage servicers creating consistency with the current policy at Freddie Mac.
Previously mortgage loans that were delinquent for more than four months, historically were purchased out of Mortgage Backed Security (MBS) investor pools by the Enterprises. Previously, Freddie Mac servicers, who were generally responsible for advancing scheduled interest, are now only obligated to advance four months of missed borrower interest payments. This action clarifies that the mortgage loans with COVID-19 payment forbearance will be treated like a natural disaster event and will remain unsold in the MBS pool. The FHFA has also instructed the Enterprises to maintain loans in COVID-19 payment forbearance plans in Mortgage Backed Security (MBS) pools for at least the duration of the forbearance plan.
“The four-month servicer advance obligation limit for loans in forbearance provides stability and clarity to the $5 trillion Enterprise-backed housing finance market,” said FHFA Director Mark Calabria. “Mortgage 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 latest policy change reflects the most recent steps that the FHFA has taken to support homeowners and the housing finance system.
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