A four-month front
The four-month rule applies to all servicers of GSE-backed loans regardless of type or size, according to the parent agency of Fannie Mae and Freddie Mac.
"The four-month servicer advance obligation limit for loans in forbearance provides stability and clarity to the $5 trillion Enterprise-backed housing finance market," Calabria said. "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."
The GSEs use mortgage-backed securities (MBSs) to fund the liquidity for much of their activity. When that's the case, Fannie Mae servicers with a scheduled payment remittance are responsible for advancing the principal and interest payment regardless of borrower payments, the FHFA said. The new four-month limit for Fannie Mae loans now puts it in line with Freddie Mac policies.
Both companies also must now maintain loans in COVID-19 payment forbearance plans in MBS pools for at least the life of that loan's plan.
"Mortgage loans that are delinquent for more than four months, historically were purchased out of MBS pools by the Enterprises," the FHFA announcement said. "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."
Not everyone's on board
The GSEs had already moved to suspend evictions and foreclosures. But not every lender and servicer is on board with the new rules.
For instance, PennyMac (NYSE: PFSI), a residential mortgage originator and servicer of more than $368 billion in loans, has said it won't buy loans that are either in forbearance or on their way.
And the problem may only get worse. The Mortgage Bankers Association (MBA) said this week that its weekly survey showed the number of loans in forbearance had reached 5.95% of servicers' portfolio volume as of April 12.
"Mortgage servicers continue to receive a very high level of forbearance requests, but volumes were down somewhat compared to the prior week. Given that lockdowns and associated job losses will continue in the coming weeks, forbearance inquiries will likely rise again as we approach May payment due dates," said Mike Fratantoni, senior vice president and chief economist for the MBA.
"Borrowers facing COVID-19-related hardships should contact their servicer to review all of their options," Fratantoni said.