Legislation Would Require Purchase and Insurance of COVID-19 Forbearance Loans Without Additional Conditions
Companion bills were recently introduced in the U.S. House of Representatives (H.R. 6794) and the U.S. Senate (S. 4260) to create the Promoting Access to Credit for Homebuyers Act of 2020. The Act would require Fannie Mae and Freddie Mac to purchase, and FHA to insure, mortgage loans involving a COVID-19 forbearance, or a request or inquiry regarding such a forbearance, without additional conditions related to the forbearance, request, or inquiry.
As previously reported, Fannie Mae and Freddie Mac will purchase certain mortgage loans in a COVID-19 forbearance. However, one of the conditions is an additional pricing adjustment of five percent if the borrower is a first-time homebuyer and seven percent for other loans. And FHA will insure certain mortgage loans in a COVID-19 forbearance subject to conditions, including that the lender execute a two-year partial indemnification agreement.
The Act would apply to a borrower with a loan originated on or after February 1, 2020, who, with respect to a prior mortgage loan or their current mortgage loan:
- Entered into forbearance as a result of a financial hardship due, directly or indirectly, to the COVID-19 emergency;
- Requested forbearance as a result of a financial hardship due, directly or indirectly, to the COVID-19 emergency; or
- Inquired as to options related to forbearance as a result of a financial hardship due, directly or indirectly, to the COVID-19 emergency (a “covered borrower”).
With respect to a mortgage loan made to a covered borrower, during the period that begins five days after the Act became law and ends 60 days after the covered period (addressed below), Fannie Mae and Freddie Mac could not, solely due to the borrower being a covered borrower, establish a purchase requirement that would:
- Impose additional restrictions that are not applicable to similarly situated loans under which the borrower is not in forbearance;
- Charge a higher guarantee fee or loan level pricing adjustment, or otherwise alter pricing for such loans, relative to similarly situated loans under which the borrower is not in forbearance;
- Apply repurchase requirements to such loans that are more restrictive than repurchase requirements applicable to similarly situated loans under which the borrower is not in forbearance; or
- Require lender indemnification of such loans, solely due to the fact that the borrower is in forbearance.
Fannie Mae and Freddie Mac would still be able to establish additional requirements to ensure that a borrower has not lost his or her job or income prior to the closing of a mortgage loan. The covered period would be the period of time during which the borrower, with respect to a mortgage loan, may request a forbearance under the CARES Act.
With respect to a mortgage loan made to a covered borrower, during the period that begins five days after the Act became law and ends 60 days after the covered period (addressed above), FHA could not, solely due to the borrower being a covered borrower:
- Deny the provision of mortgage loan insurance;
- Implement additional premiums or otherwise alter pricing for such a loan;
- Require indemnification by the lender; or
- Establish additional restrictions on the borrower.
FHA would still be able to establish additional requirements to ensure that a borrower has not lost their job or income prior to the closing of a mortgage loan.
The Act also would impose reporting obligations on the Federal Housing Finance Agency (FHFA), Fannie Mae, Freddie Mac, HUD and the Government Accountability Office. In particular, FHFA could not increase guarantee fees, loan level pricing adjustments, or any other fees, or implement any restrictions on access to credit, unless FHFA provides 48-hour advance notice of such increase or restrictions to the House Committee on Financial Services and the Senate Committee on Banking, Housing, and Urban Affairs. Along with the notice, FHFA would need to provide a detailed report of the policy rationale for the decision, including any and all data considered in making the decision.
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