FHFA Will Help Homeowners Exit Forbearance



Although it’s been over a decade, the ghost of the crash of ‘08 still hangs in the air—and it skews home buyers' perceptions of the housing market. Back in June 2020, 8.6% of mortgages were in forbearance. About a year later, those statistics were cut in half as homeowners began to exit forbearance. The national forbearance rate was at 4.36% in May of this year, and currently hovers at 3.87% since June—a far cry from last year.


Still, the FHFA has its work cut out for it, and it’s getting ready to roll up its sleeves. The Federal Housing Finance Agency is responsible for keeping Fannie Mae and Freddie Mac stable. That way, we won't have to worry about another housing crisis like the crash of ‘08. In keeping with that philosophy, the FHFA has decided to make some changes to make home retention possible for homeowners dealing with financial difficulties related to the pandemic.


FHFA Will Modify Home Loans to Reduce Interest Rates


Perhaps the most important help that the FHFA will provide to homeowners in forbearance is interest rate reduction. Granted, this only applies to homeowners who faced financial hardship during the pandemic. Previously, only homeowners with about 20% equity in their homes would be eligible to refinance their mortgage.


Now, the FHFA is making an exception so that homeowners can remain housed, given the unprecedented nature of the pandemic. Although the current housing market is strong, it will remain healthier if homeowners pre-pandemic can maintain their homeowner status. Too many foreclosures is never a good thing, and thankfully, this is something that we won’t have to worry about this time around.


Ginnie Mae to Provide 40 Year Fixed Mortgages


Although managed by the U.S. Department of Housing and Urban Development (HUD) and not the FHFA, Ginne Mae will also be providing forbearance protections for homeowners. In a historic move, Ginnie Mae will now allow borrowers to take on 40 year fixed mortgages. This mortgage extension will be done regardless of the loan amount.


If you're unfamiliar with it, Ginnie Mae is the agency responsible for buying up FHA and VA loans. While Ginnie Mae doesn’t originate loans, it (like Fannie and Freddie) securitizes them into MBSs. These bundles of mortgages can then be bought and sold on the secondary market.


Since Ginnie Mae loans are backed by the US government, these loans are issued to underserved communities. Mainly, these communities are made up of veterans and first-time home buyers with lower credit scores. These loans can also be issued at lower interest rates because the US government promises to pay back lenders their principal if a borrower defaults. In other words, this is a huge win for affordable housing!


CFPB Cracks Down On Mortgage Servicers


Mortgage servicers are the companies or lenders responsible for collecting mortgage payments. As homeowners in forbearance weigh their repayment options, the Consumer Financial Protection Bureau (CFPB) is stepping in with some new rules to protect homeowners.


First up—mortgage servicers can only initiate a foreclosure if a homeowner breaks, rejects or is ineligible for a loss mitigation application. If the homeowner has yet to fill out a loss mitigation application to exit forbearance—servicers cannot initiate a foreclosure. Servicers can only override this rule if a property is abandoned. Or if a homeowner was already six months late on their mortgage payments before March 2020, when the pandemic hit the US.

The CFPB has also made it clear that escrow shortages need to be taken into account with loss mitigation plans. This is so that homeowners don’t see any increases in their current fixed monthly payments. Because of this, there is a limit as to how much money servicers can ask homeowners to deposit in their escrow accounts.


In the spirit of stabilizing homeowners’ mortgage payments, loan modifications can be made, so long as modifications don’t cause mortgage payments to increase, and so long as loans don’t exceed 40 years of repayment.


Homeowners cannot be charged for these loan modifications, and any late fees will be waived.


Exit Forbearance Options


The last thing a homeowner wants is to have their home placed under forbearance. That's why it's important to prepare yourself to exit forbearance with a repayment plan in mind. The CFPB estimates that about 900,000 more homeowners will be able to exit forbearance near the end of this year. Now is the time to reevaluate whether refinancing or selling your home is your best option.


Whatever the case, unlike in 2008, the US now recognizes the importance of housing to the US economy. It won’t be letting its national cash cow wander off to other pastures. What I'm trying to say is: homeowners affected by the pandemic are in good hands. The US has a vested interest in keeping people housed as it rebuilds the economy.