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FHFA final rule updates FHLB housing goals
On June 3, the FHFA published a final rule for the housing goals of the Federal Home Loan Banks (FHLBs) to help underserved borrowers. The final rule’s changes include: (i) eliminating the retrospective evaluation using HMDA data and establishing a single prospective mortgage purchase housing goal at 20 percent of the number of each FHLB’s total Acquired Member Assets mortgage purchases; (ii) establishing a separate small member participation housing goal with a target goal of at least 50 percent; (iii) eliminating the existing $2.5 billion volume threshold and allowing banks to propose alternative target levels for housing goals, subject to public comment and FHFA approval; (iv) capping the extent FHLBs can use loans to higher-income borrowers to meet their housing goals; (v) establishing a process through which FHLBs could propose alternative goals to the prospective goals set in the final rule; and (vi) simplifying and clarifying eligibility criteria for housing goals to enable federally backed loans sold by small institutions to FHLBs to count for goal purposes. The final rule takes effect 60 days after publication in the Federal Register. Written requests from FHLBs proposing alternative target levels are due September 15, 2020. Enforcement will be phased in over three years and will apply to the 2021 - 2023 calendar years.
FHFA announces Fannie and Freddie LIBOR transition resources
On May 28, the FHFA announced the launch of new Fannie Mae and Freddie Mac (GSEs) websites (see here and here), which are designed to provide key resources for lenders and investors as the GSEs transition from LIBOR. The LIBOR Transition Playbook and frequently asked questions describe key transition milestones and recommended actions related to the GSEs’ transition from LIBOR to the Alternative Reference Rates Committee’s preferred Secured Overnight Financing Rate (SOFR) before the anticipated cessation of LIBOR at the end of 2021. The playbook provides resources related to, among other things, single-family adjustable-rate mortgages (ARMs) and mortgage-backed securities (MBS), as well as single-family credit risk transfer transactions, collateralized mortgage obligations, and multifamily ARMs, MBS and floating-rate loans, and credit risk transfers. The websites also provide details related to the transition of the GSEs’ Credit Risk Transfer (CRT) programs and their collateralized mortgage obligations.
Find continuing InfoBytes coverage on LIBOR here.
Fannie updates Covid-19 payment deferral lender letters
On May 27, Fannie Mae issued technical updates to Lender Letter LL-2020-07 and LL-2020-05 to include operational requirements related to reporting and completing a Covid-19 payment deferral, as well as the process for obtaining reimbursement for expenses related to the Covid-19 payment deferral. Among other things, servicers are required to pay any expenses associated with the execution of a Covid-19 payment deferral, such as required notary fees, recording costs, and title costs, but Fannie Mae will reimburse allowable expenses in accordance with F-1-05: Expense Reimbursement, in the Fannie Mae Servicing Guide.
As previously covered by InfoBytes, Fannie Mae and Freddie Mac announced the new Covid-19 payment deferral option to “help borrowers impacted by a hardship related to Covid-19 return their mortgage to a current status after up to 12 months of missed payments.” The new option is for borrowers who (i) are on a Covid-19 related forbearance plan, or (ii) have a resolved financial hardship due to Covid-19. If a borrower is eligible for the Covid-19 payment deferral, the servicer must allow the borrower to resume their contractual monthly payments; however, the delinquency amount must be deferred as a non-interest bearing balance, due and payable at liquidation, refinance, or maturity.
Servicers must begin evaluating borrowers for the Covid-19 payment deferral beginning July 1.
FHFA tries again on GSE capital framework
On May 20, the FHFA announced the re-proposal of a notice of proposed rulemaking that would establish a new regulatory capital framework for Fannie Mae and Freddie Mac (GSEs). In June 2018, the FHFA issued a proposed rulemaking that would implement a regulatory capital framework for the GSEs including (i) a new framework for risk-based capital requirements; and (ii) two alternative approaches to setting minimum leverage capital requirements. (Covered by InfoBytes here.) The FHFA states that while the 2018 proposal remains the foundation of the re-proposal, including the mortgage risk-sensitive framework, the re-proposal “increas[es] the quantity and quality of the [GSEs]’ regulatory capital and reduc[es] the pro-cyclicality of the aggregate capital requirements.”
According to a factsheet released in conjunction with the re-proposal, the purpose is to ensure that the GSEs operate in a safe and sound manner and are positioned, particularly during times of financial stress, to “fulfill [their] statutory mission to provide stability and ongoing assistance to the secondary mortgage market across the economic cycle.” Specifically, the re-proposal changes include, among other things (i) supplemental capital requirements; (ii) quality of capital changes, such as a risk weight floor and capital buffers; (iii) measures to address pro-cyclicality; and (iv) requirements for the GSEs to assess their own credit, market, and operational risk. Comments on the proposal must be submitted within 60 days of publication in the Federal Register.
Fannie and Freddie offer new Covid-19 payment deferral
On May 13, the FHFA, Fannie Mae, and Freddie Mac, announced a new Covid-19 payment deferral option that will be available starting on July 1. According to Fannie Mae Lender Letter LL-2020-07 and Freddie Mac Bulletin 2020-15, the new Covid-19 payment deferral is “a new workout option specifically designed to help borrowers impacted by a hardship related to Covid-19 return their mortgage to a current status after up to 12 months of missed payments.”
The new option is for borrowers who (i) are on a Covid-19 related forbearance plan, or (ii) have a resolved financial hardship due to Covid-19. Specifically, the servicer is required to confirm that the borrower is now able to continue making the full monthly contractual payment of their loan but is unable to reinstate the mortgage loan or afford a repayment plan to cure the previous delinquency. If a borrower is eligible for the Covid-19 payment deferral, the servicer must allow the borrower to resume their contractual monthly payments; however, the delinquency amount (which includes up to 12 months of past-due principal and interest payments; out-of-pocket escrow advances paid to third parties; and servicing advances paid to third parties in the ordinary course of business) must be deferred as a non-interest bearing balance, due and payable at liquidation, refinance, or maturity. Among other requirements detailed by the Lender Letter and Bulletin, servicers must report the loan in accordance with the Fair Credit Reporting Act, as amended by the CARES Act, which requires lenders to report as current any loans subject to Covid-19 forbearance or other accommodation. Additionally, servicers must waive all late charges, penalties, and fees upon completing the Covid-19 payment deferral.
In addition to the new Covid-19 payment deferral, borrowers will continue to have other hardship options including repayment plans, lump-sum repayment, or permanent modification. Servicers must begin evaluating borrowers for the Covid-19 payment deferral beginning July 1.
Federal agencies launch joint housing assistance website
On May 12, the CFPB, the Federal Housing Finance Agency (FHFA), and the Department of Housing and Urban Development (HUD) announced a new mortgage and housing assistance website, which consolidates the CARES Act mortgage and rent relief protections, tips to avoid Covid-19 related scams, and tools for homeowners and renters to determine if their property is federally backed. The release details the steps the CFPB has taken in response to the Covid-19 pandemic, including informing consumers of their protections under newly created programs and releasing a policy statement concerning the responsibilities of credit reporting companies and furnishers. The release also outlines efforts that FHFA’s regulated entities and HUD have taken to address the national emergency, including forbearance options for homeowners and eviction protections for renters who live in multifamily properties that are backed by Fannie Mae or Freddie Mac.
FHFA extends loan processing flexibilities offered by Fannie Mae and Freddie Mac
On May 5, FHFA announced that it extended several loan processing flexibilities offered by Fannie Mae and Freddie Mac to assist borrowers during the Covid-19 emergency. The flexibilities include permitting alternative appraisals for certain loans, alternative methods for verifying employment before loan closing, flexibilities for providing documentation related to renovation draws, and expanding the use of power of attorney and remote online notarization. The flexibilities are extended until at least June 30.
FHFA allows PPP loans as collateral for FHLB advances
On April 23, the Federal Housing Finance Agency (FHFA) announced that Federal Home Loan Banks (FHLB) will begin to accept Small Business Administration (SBA) Paycheck Protection Program (PPP) loans as collateral for advances to provide liquidity to community banks and other small lenders. FHFA issued a letter to FHLBs advising that banks may accept PPP loans from members subject to certain conditions including: (i) CAMELS rating must be at least a three, or credit rating in the top 60 percent; (ii) members downgraded after pledging PPP loans as collateral will have additional conditions placed on the collateral; and (iii) if the member does not replace PPP loans after downgrade with alternate eligible collateral, the FHLB will take possession of the collateral and impose haircuts based on member rating. The letter also sets out additional conditions regarding discounts, caps and limits. Among these conditions: (i) FHLBs must have at least a 10 percent collateral discount on 100 percent or less of unpaid principal balance (UPB); (ii) PPP collateral is capped at 20 percent of a member’s “lendable pledged collateral”; and (iii) a member may not pledge PPP loans for more than $5 billion of lendable collateral.
FHFA: Fannie, Freddie to temporarily buy mortgages in forbearance due to Covid-19
On April 22, the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac (GSEs) will purchase “certain single-family mortgages in forbearance that meet specific eligibility criteria” for a limited period in an effort to provide liquidity to ensure continued lending. Current policies dictate that the GSEs do not purchase loans that are in forbearance; however, due to the economic effects of Covid-19, FHFA will begin allowing the GSEs to buy certain mortgages that enter forbearance within the first month after loan closing, prior to delivery to the GSEs. The temporary selling requirements in Freddie Mac Bulletin 2020-12 allow lenders to sell to the GSE mortgages in forbearance only on mortgages for home purchases or “no cash-out” mortgage refinances. Further, the mortgages must have note dates between February 1, 2020 and May 31, 2020, the dates of settlement must be after May 1, and the mortgages must not be more than 30 days delinquent. Fannie Mae Lender Letter 2020-06 follows most of the same guidelines provided in the Freddie Mac bulletin, but Fannie Mae will also buy mortgages for limited cash-out refinances. To limit losses, the GSEs will charge sellers loan-level price adjustments of 5 percent for loans to first-time homebuyers, and 7 percent for all others.
FHFA: Servicers obligated to advance only four months of payments on loans in forbearance
On April 21, the Federal Housing Finance Agency (FHFA) announced it has aligned Fannie Mae’s and Freddie Mac’s (GSEs) “policies regarding servicer obligations to advance scheduled monthly principal and interest payments for single-family mortgage loans.” The plan, which is applicable to all GSE servicers regardless of type or size, limits servicers’ obligations to advance scheduled principal and interest payments to mortgage-backed securities (MBS) investors after a servicer has advanced four months of missed borrower payments on a loan. FHFA further clarifies that loans in forbearance due to Covid-19 will not be purchased out of MBS pools by the GSEs, but will instead “be treated like a natural disaster event and will remain in the MBS pool,” reducing potential liquidity demands on the GSEs. FHFA notes that both the agency and the GSEs will continue to monitor Covid-19’s impact on the housing finance market and will make policy updates as necessary.