Fannie, Freddie Regulator Moves To Ease Cash Crunch At Mortgage Servicers

Servicers were on the hook for as long as a year’s worth of payments on mortgages on forbearance. That has been capped at four months. Fannie, Freddie Regulator Moves To Ease Cash Crunch At Mortgage Servicers

A top U.S. regulator took a step to help struggling mortgage lenders contend with a cash crunch as millions of Americans suspend monthly payments on their home loans.

The Federal Housing Finance Agency said Tuesday it would cap at four months the period of time mortgage companies are on the hook to make monthly payments on behalf of borrowers who are in arrears.

The move provides some relief to the mortgage companies, such as Quicken Loans Inc. and Freedom Mortgage Corp., that collect payments from homeowners and pass them on to investors in securities backed by the loans. The companies, which both originate and service home loans, must pay investors even if borrowers stop making payments.

“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,” FHFA chief Mark Calabria said in a statement.

As part of the $2 trillion coronavirus stimulus package, the federal government allowed homeowners harmed by the outbreak to suspend payments for as long as a year without penalty. As of April 12, 5.95% of home loans were in forbearance, up from 3.74% on April 5, according to data released by the Mortgage Bankers Association on Monday.

Separately, the FHFA is also weighing whether to allow Fannie Mae and Freddie Mac, the government-controlled mortgage-finance giants, to buy home loans that recently entered forbearance, The Wall Street Journal reported Monday.

The agency, which oversees Fannie and Freddie, has so far resisted pressure from members of Congress to help the mortgage companies. It has said it wants to first see more data on the number of borrowers who are skipping their payments.

Any move to relax Fannie and Freddie’s ability to buy loans in forbearance would help the mortgage companies whose business model depends on their ability to lend to home buyers and then quickly sell the loans to the government-owned mortgage giants.

The strategy was upended recently when Fannie and Freddie announced they would no longer buy loans in forbearance, leaving the debt piling up on the books of the lightly regulated nonbank companies that both originate and service the bulk of home loans in the U.S.

“We are aware of the issue,” said Raphael Williams, a spokesman for FHFA. “Currently, we are working to find out the breadth of the issue and possible solutions.”

Tuesday’s move to cap the number of months the companies must advance payments is designed to ensure Fannie and Freddie’s policies match up.

To date, servicers of Fannie-backed mortgages had been expected to advance up to a year of payments on behalf of borrowers in forbearance, while Freddie had planned to take over servicer payments after four months.

Michael Bright, chief executive of the Structured Finance Association, called Tuesday’s FHFA announcement a “very welcome development” as it lines up the forbearance program with Fannie and Freddie’s historical responsibilities. He added: “Whether this is sufficient will now depend on how high the forbearance numbers get.”

Some industry officials say difficulties faced by mortgage servicers helped fuel uncertainty over the cost of servicing new mortgages, causing a tightening of lending standards that has made it difficult for all but the most creditworthy borrowers to get a home loan.

Updated: 4-23-2020

Housing Regulator Moves To Ease Crunch At Mortgage Companies

Fannie Mae, Freddie Mac will buy mortgages they typically wouldn’t—and will charge a hefty fee.

The federal agency that oversees the bulk of the U.S. housing market is stepping in to help cash-starved mortgage firms—but it is exacting a price.

The firms, including companies like Quicken Loans Inc. and Freedom Mortgage Corp., have been stuck with mortgages they would typically sell, as borrowers suspend payments amid the economy’s pandemic-driven downturn.

The Federal Housing Finance Agency said Wednesday that mortgage firms can sell some of those loans to Fannie Mae FNMA 2.29% and Freddie Mac, the government-controlled companies that buy mortgages and package them into securities.

“Purchases of these previously ineligible loans will help provide liquidity to mortgage markets and allow originators to keep lending,” FHFA Director Mark Calabria said in a statement.

Industry officials praised the regulator’s move but suggested that fees Fannie and Freddie will charge for the purchases—from 5% to 7% of a loan’s value—were high and should be subject to negotiation.

“The new fees attached to the sale of loans may be cost-prohibitive for many credit unions and limit affordable loan options for home buyers,” Dan Berger, chief executive of the National Association of Federally Insured Credit Unions, said in a statement.

Like banks and nonbank mortgage companies, credit unions originate loans that they sell to Fannie and Freddie

Bob Broeksmit, chief executive of the Mortgage Bankers Association, said the move was “an important first step but more needs to be done,” both on pricing and on including all types of loans.

The loans will be priced “to mitigate the heightened risk of loss” to Fannie and Freddie, the FHFA statement said.

Fannie and Freddie don’t make loans but instead buy them from lenders and package them into securities that are sold to other investors.

Industry officials were anticipating federal action to help banks and mortgage companies that typically lend to home buyers and then quickly sell the loans to Fannie and Freddie. Their business model was upended recently when Fannie and Freddie said they wouldn’t buy loans in so-called forbearance—meaning borrowers have stopped making payments.

The officials said they were working to quantify the number of loans stuck unsold on companies’ books.

The problem stems from the stimulus package passed by Congress last month. The law allows homeowners to suspend payments on government-guaranteed loans for as long as a year without penalty if they suffered a hardship related to the coronavirus pandemic.

Historically, Fannie and Freddie haven’t bought loans that were in forbearance. The new policy, which was reported earlier by The Wall Street Journal, will apply to loans to buy new homes and some refinanced mortgages that lenders were preparing to sell to Fannie and Freddie.

Some mortgage executives said the FHFA’s move would provide certainty to lenders seeking to sell loans stuck on their books.

“It’s not the price that you’d want,” said Mat Ishbia, chief executive of United Wholesale Mortgage, but he described the FHFA’s decision to provide support as “more than fair.”

Fannie and Freddie charge fees to guarantee loans and they can assess fees on risky loans; but the charges are generally assessed at the time the loan is approved, not after, according to housing experts. They are also generally much lower: The largest single “loan level price adjustment” listed by Fannie is 4.125%, for investment properties with less than a 3% downpayment.

Updated: 5-20-2021

Fannie, Freddie Should Hold $240 Billion In Capital After Return To Private Hands, FHFA Says

Federal housing regulator outlines ambitious proposal for mortgage finance giants.

A top federal regulator said on Wednesday that mortgage giants Fannie Mae and Freddie Mac should hold $240 billion in capital after they are returned to private ownership.

The figure proposed by the Federal Housing Finance Agency sets a high hurdle for the companies, which together insure half of the $11 trillion mortgage market and were taken over by the government during the 2008-2009 financial crisis.

Fannie and Freddie currently hold about $23.5 billion of capital between them. In 2018, when the FHFA was still run by an Obama appointee, the agency estimated that they would need to hold about $180 billion in loss absorbing capital after exiting government control.

FHFA officials believe Wednesday’s proposal puts the companies on track to begin raising capital next year, though they say the timing is not calendar-dependent.

The proposal represents one of several key steps in long-delayed efforts to resolve the future of Fannie and Freddie. In September the FHFA and the Treasury Department allowed Fannie and Freddie to retain as much as $45 billion of their earnings—pausing a requirement that they turn over most of their profits to the Treasury.

“We must chart a course for the [companies] toward a sound capital footing so they can help all Americans in times of stress,” FHFA Director Mark Calabria said in a statement. “More capital means a stronger foundation on which to weather crises.”

Since taking over the FHFA a year ago, Mr. Calabria has focused on preparing Fannie and Freddie to exit government control. His agency hired investment bank Houlihan Lokey in February to help advise on recapitalizing the companies. Both companies have said they would hire their own advisers.

While high capital levels provide a buffer against losses and ensure the companies operate safely, they also could reduce investor interest because their return on equity, a measure of profitability, will be lower, said Isaac Boltansky, a policy analyst at Compass Point.

“The size of the capital requirement being proposed is going to weigh on investor sentiment and could ultimately complicate the timeline,” he said.

But the current deep economic downturn will preoccupy the FHFA and administration officials for the foreseeable future, Donald Layton, a former head of Freddie, told The Wall Street Journal last month. And with credit losses rising, investors aren’t likely to provide the tens of billions of dollars of capital the companies will need.

“It is inevitable the first major capital raises by the companies won’t be anytime soon,” Mr. Layton said in an interview.

Fannie and Freddie play critical roles maintaining the plumbing of the U.S. mortgage market. They purchase loans from lenders and repackage them as securities that are insured if the loans default. Their role makes it possible for lenders to offer 30-year fixed-rate mortgages.

The firms’ regulator seized the companies through a process known as conservatorship during the George W. Bush administration. They required about $190 billion from taxpayers in the years after the 2008 financial crisis to stay afloat.

The FHFA will collect public comment on Wednesday’s proposed capital requirements before it finalizes them, likely later this year.

Updated: 11-30-2021

Fannie Mae, Freddie Mac To Back Home Loans Of Nearly $1 Million

The maximum size of home-mortgage loans eligible for government backing will jump to $970,800 next year in high-cost markets.

Starting next year, home buyers in high-cost areas of the country will be able to borrow nearly $1 million for a mortgage loan backed by the government, a reflection of the rapid appreciation in home prices nationally.

The maximum size of home-mortgage loans eligible for backing by Fannie Mae and Freddie Mac will jump to $970,800 in high-cost markets such as parts of California and New York, up from $822,375 this year, the Federal Housing Finance Agency said Tuesday.

For most parts of the country, loan limits will rise to $647,200 from a 2021 maximum of $548,250, said FHFA, which oversees Fannie Mae and Freddie Mac.

The increase in loan limits might make it easier and cheaper for some borrowers to buy a home, but the higher limits are also likely to intensify debate over how big is too big for a government-backed mortgage.

Sandra Thompson, the acting head of the FHFA, said in a statement Tuesday that her agency is evaluating the relationship between home-price growth and the annual loan limits, “particularly as they relate to creating affordable and sustainable homeownership opportunities across all communities.”

By law, the loan limits are updated annually using a formula that factors in average housing-price increases nationwide.

Mortgages within the limits are called conforming loans; mortgages that exceed them are called jumbo mortgages, which tend to come with a higher interest rate, more closing costs and a larger down payment requirement for comparable borrowers.

Mortgage bankers and real-estate agents say the new limits should keep pace with the double-digit rise in home prices. Low mortgage-interest rates and buyers looking for more space during the Covid-19 pandemic have helped fuel the housing price surge in recent months, along with a significant shortage of new homes.

Nationwide, the median single-family, existing-home sales price rose 16% in the third quarter to $363,700 from a year before, a record in data going back to 1968, the National Association of Realtors said Nov. 10.

The higher limits will help people like Alex Eich, 33 years old, buy a larger home in suburban Phoenix for his wife and three children.

A shop foreman who works on agricultural equipment, Mr. Eich is closing this week on a $715,000 home in Waddell, Ariz. Mr. Eich plans to close on the home this week, but his lender will wait to sell the mortgage to Fannie or Freddie in early 2022, once the higher loan limits apply.

If not for the higher limits, the house would be out of reach, he said.

“My wife and I aren’t after anything extravagant,” Mr. Eich said. “We’re just buying a slightly bigger house in the suburbs with a little bit of space.”

Fannie and Freddie, which guarantee about half of the $11 trillion mortgage market, don’t make loans. They instead buy them from lenders and package them into securities that are sold to investors.

The government assumed control of the firms in 2008 during the height of the financial crisis to prevent their failure. Under the terms of their 2008 conservatorships, they currently have access to more than $250 billion in support from the Treasury Department.

Some housing experts say the jump in loan limits raises questions about the appropriate role of the government in housing and whether taxpayers should effectively backstop sky-high housing prices, when Fannie and Freddie’s market share is already rising.

They favor policies that would eventually wean the mortgage market off government support and allow the market for nongovernment-guaranteed mortgages to take a bigger role, particularly for high-dollar loans.

Efforts since the financial crisis to wind down Fannie and Freddie or shrink their footprint in housing have repeatedly sputtered.

“We’re continuing to go down a trail in which we see the Treasury, through the backstop of Fannie and Freddie in conservatorship, backing larger and larger loans, taking up more and more of the market,” said Ed DeMarco, a former top FHFA official, in an interview earlier this month. “At some point, you would expect Treasury and the Congress would want to ask, is this really where we want to be going?”

Mr. DeMarco is now head of the Housing Policy Council, a housing-industry trade group.

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