On June 11, 2020, Fannie Mae and Freddie Mac updated their selling FAQs to address the sale of loans in a forbearance because of a COVID-19 financial hardship.
In their original announcements, Fannie Mae and Freddie Mac indicated that, subject to specified requirements, beginning May 1, 2020, they would purchase loans for which the borrower was approved for a forbearance plan based on a COVID-19 related financial hardship that occurred after the note date. One of the conditions is that the seller pay a loan level price adjustment (LLPA) of 500 basis points for a first time homebuyer and 700 basis points for all other borrowers.
Fannie Mae and Freddie Mac address the result if a seller delivered a mortgage loan that did not meet the requirements for the sale of a loan in forbearance.
- If the loan meets all of the eligibility requirements, except that it was delivered or settled before May 1, 2020, the seller has the option to repurchase the loan or pay the loan level price adjustment.
- If the loan does not meet the note date, loan purpose, or pay history requirements and was delivered or settled prior to May 1, 2020, the seller must repurchase the loan.
- If the loan does not meet the note date, loan purpose, or pay history requirements and was delivered or settled on or after May 1, 2020, the seller must repurchase the loan
For loans in the first category, whichever election the seller makes applies to all loans in the category sold to either Fannie Mae or Freddie Mac. So a lender cannot choose (1) the LLPA option for one loan and the repurchase option for another loan, or (2) the LLPA option for loans sold to Fannie Mae and the repurchase option for loans sold to Freddie Mac (or vice versa). If a seller did not self-report a loan sold to Fannie Mae or Freddie Mac as being in forbearance based on a COVID-19 related financial hardship that occurred after the note date, and Fannie Mae or Freddie Mac discover that the loan is in the first category, the election made by the seller applies to such loan as well.
When a seller elects the repurchase option for a loan in the first category, the repurchase price will include the applicable premium recapture amount and indemnification for losses arising from investor claims for prepayment. When a seller elects the LLPA option for a loan in the first category and Fannie Mae or Freddie Mac find other significant defects with the loan, this could result in a repurchase request.
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