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FHFA seeks to implement minimum GSE liquidity and funding requirements
On December 17, the FHFA announced a notice of proposed rulemaking (NPRM) regarding liquidity and funding requirements for Fannie Mae and Freddie Mac (GSEs). The NPRM seeks to, among other things, implement two cash-flow based requirements and two long-term liquidity and funding requirements. These new requirements include (i) a short-term, 30-day liquidity requirement—based on a cumulative net cash outflow analysis plus requiring an additional $10 billion cushion of highly liquid assets; (ii) a 365-day liquidity requirement “extending the short-term cumulative cash outflow analysis to a full year”; (iii) a requirement that the “ratio of long-term unsecured to less-liquid assets must be greater than 120 percent”; and (iv) a requirement that the “ratio of the spread duration of unsecured debt to the spread duration of retained portfolio assets must be greater than 60 percent.” FHFA notes that the NPRM is intended to help ensure the GSEs “have enough liquid assets to continue supporting the mortgage market during times of severe stress.” The NPRM also supports FHFA oversight of GSE “prudential management, including compliance with standards pertaining to ‘adequacy and maintenance of liquidity and reserves.’” Comments on the NPRM are due 60 days after publication in the Federal Register.
Special Alert: CFPB redefines Qualified Mortgage; “GSE Patch” to expire
The Consumer Financial Protection Bureau last week released two final rules further defining what types of loans can be a “qualified mortgage loan” for purposes of the bureau’s Ability-to-Repay/Qualified Mortgage Rule (ATR/QM Rule). The General QM Final Rule substantially revamps the general rules defining what constitutes a General QM and removes the existing debt-to-income threshold over which a loan cannot be considered a General QM. The Seasoned QM Final Rule creates a new class of QM that allows certain rebuttable presumption QMs and non-QMs to achieve “safe harbor” QM status three years after origination provided the consumer has strong repayment history.
Importantly, the “GSE Patch,” which provides QM status to loans qualifying for sale to Fannie Mae or Freddie Mac, expires for applications submitted before July 1, 2021, at which point the General QM Rule will take effect (although compliance with both rules is permitted 60 days after publication in the Federal Register).
FHFA extends Covid-19 flexibilities until January 31
On December 10, the FHFA announced the extension of several loan origination guidelines put in place to assist borrowers during the Covid-19 pandemic. Specifically, FHFA extended until January 31 existing guidelines related to: (i) alternative appraisal requirements on purchase and rate term refinance loans; (ii) alternative methods for documenting income and verifying employment before loan closing; and (iii) expanding the use of power of attorney to assist with loan closings. The extensions are implemented in updates to Fannie Mae Lender Letters LL-2020-03, LL 2020-04; and Freddie Mac Guide Bulletin 2020-47 and Selling FAQs.
Waters recommends Biden reverse several of Trump's actions
On December 4, Chairman of the House Financial Services Committee, Maxine Waters (D-CA) sent a letter to President-Elect Biden providing a list of regulations and other executive actions taken by the Trump administration that the Biden administration should immediately reverse, as well as recommendations for strengthening other regulations. Among other things, Waters recommended that the Biden administration (i) issue an executive order to prevent evictions by “directing the CDC to extend and improve its public health order so people can remain in their homes until emergency rental assistance is available”; (ii) amend HUD and FHFA policies that impose restrictions and increased costs for certain loans that go into forbearance prior to FHA endorsement or purchase by Fannie Mae or Freddie Mac to ensure these loans are still eligible for FHA insurance and purchase by Fannie and Freddie; and (iii) fully use Coronavirus Aid, Relief, and Economic Security (CARES) Act lending authorities, many of which will terminate at the end of December (covered by InfoBytes here).
Waters also urged the Biden administration to take measures to ensure consumer protections, including by, among other things, dismissing Director Kathy Kraninger, enforcing CARES Act protections, and directing the CFPB to (i) issue guidance to financial institutions to ensure affected borrowers are afforded “appropriate forbearance and loan modifications”; (ii) “work to replace the ’Payday, Vehicle Title, and Certain High-Cost Installment Loans’ rule with [one] that protects consumers from predatory lenders”; (iii) restore the Bureau’s Office of Fair Lending and Equal Opportunity’s roles and responsibilities; and (iv) rescind its recently issued final rule amending certain debt collection rules (covered by InfoBytes here), and instead strengthen “consumer protections against abusive debt collection practices.” Other recommendations address diversity and inclusion, financial stability, investor protection, affordable housing, and international development.
Fannie and Freddie issue Covid-19 servicing updates
On December 9, Fannie Mae and Freddie Mac issued Covid-19 servicing updates (Lender Letter 2020-02 here, and Bulletin 2020-46 here), which, among other things, address the extension of the foreclosure moratorium and update the requirements of borrower-requested cancellation of mortgage insurance. Specifically, the servicing updates address the extension of the moratorium on single-family foreclosures and real estate owned (REO) evictions from December 31 until at least January 31, 2021 (previously covered by InfoBytes here). Additionally, the servicing updates include new payment-history requirements when a borrower requests the cancellation of mortgage insurance post-Covid-19-related hardship. In order to request cancellation, the borrower’s payment history must not have a payment 30 days or more past due in the preceding 12 months (and/or 60 or more days past due in the preceding 24 months) except when as a direct result of a Covid-19-related hardship and, following the hardship, a transition to a workout option to cure the delinquency. For mortgages restored to current status under the Covid-19 Payment Deferral, the borrower is required to have made three consecutive payments following the settlement of the deferral to meet the requirements.
FHFA increases conforming loan limits for 2021
On November 24, the FHFA announced that it will raise the maximum conforming loan limits (CLL) for mortgages purchased in 2021 by Fannie Mae and Freddie Mac from $510,400 to $548,250. In most high-cost areas, the maximum loan limit for one-unit properties will be $822,375. According to the FHFA, due to generally rising home values, “the maximum CLL will be higher in 2021 in all but 18 counties or county equivalents in the U.S.” A county-specific list of the maximum loan limits in the U.S. can be accessed here.
FHFA extends foreclosure moratorium
On December 2, the FHFA announced that Fannie Mae and Freddie Mac (GSEs) will extend their moratorium on single-family foreclosures and real estate owned (REO) evictions until at least January 31, 2021 (which was set to expire on December 31, previously covered here). The foreclosure moratorium applies to homeowners with a GSE-backed, single-family mortgage, and the REO eviction moratorium applies to properties that were acquired by the GSEs through foreclosure or deed-in-lieu of foreclosure transactions.
FHFA finalizes GSE capital framework
On November 18, the FHFA announced a final rule, which establishes a new regulatory capital framework for Fannie Mae and Freddie Mac (GSEs) to ensure safety and soundness. The final rule is similar to the proposed rule published earlier this year (covered by InfoBytes here), and it generally makes the following notable modifications in response to comments: (i) increases the dollar amount of capital relief for the GSEs’ credit risk transfers; (ii) reduces the credit risk capital requirements for single-family mortgage exposure subject to Covid-19 related forbearance; and (iii) increases the exposure level risk-weight floor for single-family and multifamily mortgage exposures to 20 percent.
According to a fact sheet released in conjunction with the announcement, the final rule preserves key enhancements contained within the proposed rule. These include, among other things, (i) ensuring each GSE “maintains high-quality regulatory capital by including a set of supplemental capital requirements based on the U.S. banking framework’s definitions of [common equity tier 1], tier 1, and total capital”; (ii) strengthening the quality of regulatory capital; (iii) including backstop leverage requirements; and (iv) addressing pro-cyclicality through measures such as capital buffers and single-family mortgage exposure countercyclical adjustments.
The final rule takes effect 60 days after publication in the Federal Register.
FHFA further extends Covid-19 flexibilities until December 31
On November 13, the FHFA announced the extension of several loan origination guidelines put in place to assist borrowers during the Covid-19 pandemic. Specifically, FHFA extended until December 31 existing guidelines related to: (i) alternative appraisal requirements on purchase and rate term refinance loans; (ii) alternative methods for documenting income and verifying employment before loan closing; and (iii) expanding the use of power of attorney to assist with loan closings. The extensions are implemented in updates to Fannie Mae Lender Letters LL-2020-03, LL 2020-04, and Freddie Mac Guide Bulletin 2020-44.
FHFA extends GSEs’ ability to buy mortgages in forbearance
On November 12, the FHFA announced an extension of a temporary policy related to the Covid-19 pandemic that allows Fannie Mae and Freddie Mac (GSEs) to purchase qualified single-family mortgages in forbearance that meet specific eligibility criteria. The policy is now extended for loans originated through December 31. As previously covered by InfoBytes, in an effort to provide liquidity to ensure continued lending during the Covid-19 pandemic, FHFA is allowing the GSEs to buy certain mortgages that enter forbearance within the first month after loan closing, prior to delivery to the GSEs.