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Fannie Mae announces flexibility with appraisals
On March 23, Fannie Mae issued Lender Letter 2020-04 announcing temporary flexibilities to its appraisal requirements. These include allowing exterior-only or desktop appraisals when an interior appraisal is not feasible because of Covid-19 concerns, subject to specified terms. The letter also announced modified forms, developed jointly with Freddie Mac, to be used with desktop and exterior-only appraisals.
FHFA authorizes GSEs to support additional liquidity in the secondary mortgage market
On March 23, FHFA announced that is has authorized Fannie Mae and Freddie Mac to enter into additional dollar roll transactions, which provide MBS investors with short-term financing of their positions, to help support immediate needs for liquidity in the secondary mortgage market. Eligible collateral is limited to Agency MBS and the transactions must be undertaken via an auction or similar mechanism to ensure that they occur at a fair market price.
FHFA directs enterprises to grant flexibilities for appraisal and employment verifications
On March 23, FHFA directed Fannie Mae and Freddie Mae to provide alternative flexibilities for lenders to satisfy appraisal and employment verification requirements through May 17, 2020.
FHFA directs Fannie and Freddie to suspend foreclosures and evictions due to Covid-19
On March 18, the FHFA announced that it has directed Fannie Mae and Freddie Mac to suspend foreclosures and evictions for at least 60 days due to the Covid-19 national emergency. The foreclosure and eviction suspension applies to homeowners with an Enterprise-backed single-family mortgage.
GSEs provide Covid-19 guidance
FHFA and Freddie Mac have issued reminders that borrowers impacted by Covid-19 meet forbearance hardship requirements for Fannie Mae and Freddie Mac loans, and servicers must work with impacted borrowers unable to make mortgage payments and be responsive to potential requests for assistance.
Freddie Mac also reiterated a requirement for sellers/servicers to maintain a business continuity plan as set forth in Section 1302.3 of the Freddie Mac Guide.
GSEs update interactive URLA
On January 29, Freddie Mac and Fannie Mae (GSEs) jointly announced the release of the updated interactive (fillable) pdf version of the Uniform Residential Loan Application (URLA), also known as Freddie Mac Form 65 and Fannie Mae Form 1003. The announcement also identifies a number of supporting documents published in connection with the new URLA, including instructions on how to complete the new form and a list of Frequently Asked Questions. An appendix at the end of the announcement illustrates improvements from the old application to the new application. Additionally, the GSEs have URLA pages on their websites to provide more information (see Freddie Mac’s URLA page here and Fannie Mae’s URLA page here). The effective date for the updated URLA is September 1, and lenders must begin using the new URLA form on November 1.
Fannie, Freddie to drop LIBOR in favor of SOFR
On February 5, the FHFA announced updated LIBOR transition plans for Fannie Mae and Freddie Mac (GSEs) single-family and multi-family mortgage sellers and lenders, providing the next steps in the transition from LIBOR to the Secured Overnight Financing Rate (SOFR) for adjustable rate mortgage (ARM) instruments. The next steps include (i) a “[n]ew language require[ment] for single-family Uniform…ARM instruments closed on or after June 1, 2020”; (ii) a requirement that “[a]ll LIBOR-based single-family and multifamily ARMs…loan application dates [must be] on or before September 30, 2020 to be eligible for acquisition”; and (iii) that “[a]cquisitions of single-family and multifamily LIBOR ARMs will cease on or before December 31, 2020.” The announcement links to information directly from the two GSEs: Fannie Mae Multifamily Mortgage Business Lender Letter 20-02, and Fannie Mae Single-Family Sellers Lender Letter LL-2020-01; and Freddie Mac Selling Updates Bulletin 2020-1 and Freddie Mac Multifamily Update on LIBOR Transition. The FHFA LIBOR Transition page notes that the GSEs have already stopped buying ARMs based on LIBOR that mature after 2021 in preparation for the termination of the benchmark’s use.
FHFA updates Fannie, Freddie seller/servicer eligibility
On January 31, the FHFA proposed updated minimum financial requirements for Fannie Mae and Freddie Mac (GSEs) single-family mortgage sellers and servicers. The updates are designed to provide transparency and consistency of capital and liquidity requirements for sellers and servicers with different business models. A key improvement to the 2015 minimum financial requirements (covered by InfoBytes here), FHFA stated, is that the updated standards will establish financial requirements for servicing Ginnie Mae mortgages. FHFA further noted that the new minimum liquidity standards will only be applied to non-depository institutions—depository institutions will continue to rely on their existing regulatory standards to meet the GSEs’ capital and liquidity requirements. FHFA will accept comments on the proposal for 60 days, and anticipates finalizing the requirements in the second quarter of 2020, with an expected effective date six months after finalization.
Kraninger outlines plan to extend GSE patch, previews QM Rule
According to sources, on January 17, CFPB Director Kathy Kraninger sent a letter to prominent members of Congress announcing plans to extend the qualified mortgage patch—which exempts loans eligible for purchase by Fannie Mae and Freddie Mac (GSEs) from the Qualified Mortgage (QM) Rule’s 43 percent debt-to-income (DTI) ratio—for a short period beyond its current January 2021 expiration. As previously covered by a Buckley Special Alert, the Bureau issued an Advance Notice of Proposed Rulemaking last July to solicit feedback on, among other things, whether the DTI limit should be altered and how Regulation Z and the Ability to Repay/QM Rule should be amended to minimize disruption from the so-called GSE patch expiration. Kraninger notes in her letter that the Bureau plans to propose an amendment to the QM Rule to replace DTI ratios as a factor in mortgage underwriting with an alternative measure of credit risk. One alternative, Kraninger says, could be to use pricing thresholds based on the difference between the loan’s annual percentage rate and the average prime offer rate for a similar loan. The Bureau is also considering adding a “seasoning” approach through a separate rulemaking process to give safe harbor to certain loans when the borrower has made timely payments for a certain period, Kraninger states. Sources report that the Bureau plans to issue a Notice of Proposed Rulemaking no later than May.
FHFA proposes stress testing amendments
On December 16, the FHFA released a notice of proposed rulemaking (NPRM) to amend the stress testing requirements for Federal Home Loan Banks (FHL Banks), consistent with changes made by Section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act). Specifically, the NPRM will (i) increase the minimum threshold for regulated entities to conduct stress tests from $10 billion to $250 billion in total consolidated assets; (ii) remove the requirements for FHL Banks subject to stress testing, as none of the banks meet the minimum threshold (notably, under the proposal, the Director will maintain the ability to require any regulated entity with assets below the minimum threshold to conduct stress tests at his or her discretion); and (iii) reduce the number of stress test scenarios from three to two by removing the “adverse” scenario. According to the FHFA, while the “adverse” scenario provides value in limited circumstances, “the ‘baseline’ and ‘severely adverse’ scenarios largely cover the full range of expected and stressful conditions.” As such, the FHFA believes removing the “adverse” scenario will reduce the supervisory burden for FHL Banks. The FHFA further proposes that the Enterprises (Fannie Mae and Freddie Mac)—who remain subject to stress testing under the NPRM—be required to conduct stress tests on an annual basis, as Section 401 changed the required frequency from “annual” to “periodic,” but did not define the term “periodic” in the Act.
Comments on the NPRM are due January 13, 2020.