For Borrowers with a Forbearance, Fannie Mae and Freddie Mac Address their Eligibility for New Loans
On May 19, 2020, Fannie Mae in an update to Lender Letter 2020-03 and Freddie Mac in Bulletin 2020-17 announced temporary eligibility requirements for new purchase and refinance transactions involving borrowers affected by the COVID-19 pandemic who are, or have been, in a forbearance with their existing mortgage loan. The Federal Housing Finance Agency also issued a corresponding news release, with Director Calabria stating that this “action allows homeowners to access record low mortgage rates and keeps the mortgage market functioning as efficiently as possible.” Sellers must apply the new eligibility policies to loans with application dates on or after June 2, 2020, and may apply the policies to applications that are already in process.
For a borrower with an existing mortgage loan that is current as of the Note Date of the new mortgage loan, the standard Fannie Mae and Freddie Mac eligibility criteria will apply. An existing mortgage loan will be considered current as of the Note Date of the new mortgage loan if the borrower made all mortgage payments due in the month prior to the Note Date no later than the last business day of that month. Freddie Mac also expressly notes that such borrowers may not be in a repayment plan, loan modification trial period plan, payment deferral, or subject to another loss mitigation program.
If a borrower resolved missed payments on an existing mortgage loan through a reinstatement, the only additional eligibility requirements are that, if the reinstatement that was completed after the application date and before the Note Date of the new mortgage loan, the seller must document the source of funds used for the reinstatement, and the proceeds of the new loan may not be used for the reinstatement.
If missed payments on an existing mortgage loan have been or will be resolved through a loss mitigation option, the borrower must meet the applicable additional eligibility requirements outlined below:
- If the borrower is subject to a repayment plan, the borrower must have (1) made three payments under the plan or (2) completed the plan, whichever occurs first (there is no requirement that the plan actually be completed). Freddie Mac adds that the borrower must be performing, and not have missed any payments, under the plan. Freddie Mac also notes that the proceeds from the new mortgage loan may be used to pay off the remaining payments under the repayment plan.
- If the borrower is subject to a payment deferral, the borrower must have made three consecutive payments following the effective date of the payment deferral agreement. Freddie Mac adds that the payments must have been made timely, and notes that the proceeds from the new mortgage loan may be used to pay off the deferred amount.
- If the borrower is subject to a modification with a trial period, the borrower must have completed the three-month trial payment period.
- If the borrower is subject to any other loss mitigation solution, the borrower must have (1) successfully completed the loss mitigation program or (2) made three consecutive full payments in accordance with the program. Freddie Mac adds that the borrower must be performing, and not have missed any payments, under the program.
Fannie Mae advises that the temporary policies do not apply to high LTV refinance loans, and Freddie Mac advises that the temporary policies do not apply to Enhanced Relief Refinance® Mortgages.
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