Fannie Mae and Freddie Mac can purchase early forbearance loans until Aug. 31, but they still have to impose steep loan-level price adjustments to limit their risk of losses.
In the announcement extending the policy, FHFA Director Mark Calabria offered a defense of the stiff surcharges, saying, “Lenders have a responsibility to ensure that borrowers can make their monthly payment.”
The improved financial performance of the GSEs largely reflects the impact of CECL. The provisions for losses that would have been made in 2Q20 under the old accounting standard were already accounted for by CECL, which was adopted in December. (Includes data chart.)
Urban Institute researchers estimate the 7% fee the GSEs charge to purchase loans that have gone into forbearance after closing squeezes 255,000 creditworthy borrowers out of the market.
Democratic lawmakers said the re-proposed capital rule could adversely affect access to credit for borrowers of color and lower income individuals. Also, they said quickly recapitalizing the GSEs in the midst of a public health crisis might interfere with the nation’s economic recovery.
Pointing to unemployment rates that reached 14.7% in April, and a 7.3% decline in consumer expenditures in March, FHFA is simply acknowledging the obvious: The U.S. economy has entered a recession of unprecedented depth and unknown duration.
Although the FHLBanks market themselves as local lenders, this image doesn’t match their operations. Ten of the nation’s largest commercial banks account for about 30% of FHLBank advances.
When panic first set in over the economic impact of COVID-19, investors sold off historically large volumes of MBS and Treasuries. As a result, liquidity and pricing efficiency both took a beating. It was the Fed’s gluttonous appetite for these securities that brought markets off the cliff.