GSE Borrowers In Forbearance Can Buy, Refi – Eventually

By Jim Perskie

Borrowers are eligible to refinance or buy a new home three months after their forbearance ends and they have made three straight payments under their repayment plan, according to new temporary guidance issued Tuesday by Fannie Mae and Freddie Mac.

The guidance, announced by the Federal Housing Finance Agency, clarifies how lenders should handle loans for borrowers who are in forbearance but are looking to refinance or buy a new home with federally backed mortgages.

“Homeowners who are in COVID-19 forbearance but continue to make their mortgage payment will not be penalized,” said Director Mark Calabria. “Today’s action allows homeowners to access record low mortgage rates and keeps the mortgage market functioning as efficiently as possible.”

The $2 trillion CARES Act comes with significant benefits for homeowners who are unable to make their mortgage payments, most notably a moratorium on foreclosures and the right to forbearance. Forbearance allows borrowers with a federally backed mortgage to put off payments for at least six months if they suffer economic hardship during the pandemic.

The Mortgage Bankers Association announced Monday that 8.16 percent of loans in the United States were in forbearance as of May 10 – up from 0.25 percent in early March.

Also Tuesday, FHFA said Fannie and Freddie will continue to purchase single-family mortgages in forbearance.

Fannie and Freddie are now able to buy the loans with note dates on or before June 30, as long as they are delivered to the Enterprises by August 31 and where only one mortgage payment has been missed. The previous policy was set to expire at the end of this month.

FHFA originally implemented the policy in April in response to borrowers seeking mortgage forbearance shortly after closing on loans – and before the lender could deliver the loan to Fannie or Freddie. Prior to the change, loans in forbearance were ineligible to be sold under Fannie and Freddie requirements, placing the borrower and the lender in jeopardy.

Industry groups applauded the moves.

“This provides much-needed clarity for borrowers, mortgage lenders, and servicers. We also commend FHFA for extending the GSEs’ previous policy on purchasing single-family mortgages in forbearance,” MBA President and CEO Robert D. Broeksmit said. “These welcome moves ensure that homeowners who continue to make on-time payments – and those who have successfully exited forbearance – can benefit from near record-low mortgage rates. It also keeps the mortgage market functioning efficiently and helps ease current credit availability constraints.”

National Association of Realtors President Vince Malta said, “NAR applauds the FHFA and Director Calabria for taking additional steps to secure the U.S. housing market and ensure mortgage and refinance options remain available to creditworthy Americans. Homeowners who have been forced into forbearance by no fault of their own but continue to make payments should not be penalized because of this pandemic. With the real estate industry driving nearly one-fifth of our national GDP, assurances that homebuyers can access credit and capitalize on record-low mortgage rates remain critical to America’s economic recovery.”