FHFA Announces 4-Month Advance Obligation Limit for Loans in Forbearance

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The Federal Housing Finance Agency (FHFA) recently announced the alignment of Fannie Mae’s and Freddie Mac’s (the Enterprises) policies regarding servicer obligations to advance scheduled monthly principal and interest payments for single-family mortgage loans.  In other words, once a servicer has advanced four months of missed payments on a loan, it will have no further obligation to advance scheduled payments. This policy applies to all Enterprise servicers regardless of type or size.  In addition, the FHFA is instructing 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 FHFA said mortgages that are delinquent for more than four months, historically were purchased out of MBS pools by the Enterprises. Today’s action clarifies that mortgage loans with COVID-19 payment forbearance shall be treated like a natural disaster event and will remain in the MBS pool. This change reduces the potential liquidity demands on the Enterprises resulting from loans in COVID-19 forbearance and delinquent loans.

“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.”

Click here to read the full release at the FHFA.

UPDATE:  CNBC is reporting that the FHFA announced that the two mortgage giants (Fannie & Fred) will now buy home loans that go into the government’s forbearance program just after they close.

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Director of Education & Outreach, National Real Estate Investors Association

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