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Fannie, Freddie May Soon Buy Home Loans in Forbearance to Help Mortgage Firms

The Wall Street Journal. logo The Wall Street Journal. 4/21/2020 Andrew Ackerman
This Monday, Nov. 3, 2014 photo shows a a house for sale in Los Angeles. Freddie Mac, the mortgage company, releases weekly mortgage rates on Thursday, Nov. 13, 2014. (AP Photo/Richard Vogel) © Richard Vogel/Andy Rogers This Monday, Nov. 3, 2014 photo shows a a house for sale in Los Angeles. Freddie Mac, the mortgage company, releases weekly mortgage rates on Thursday, Nov. 13, 2014. (AP Photo/Richard Vogel)

A top U.S. regulator is considering taking steps to ease strains on mortgage companies facing a cash crunch as millions of Americans struggling with fallout from the coronavirus suspend their monthly payments, according to people familiar with the matter.

The Federal Housing Finance Agency is weighing whether to allow Fannie Mae and Freddie Mac, the government-controlled mortgage-finance giants, to buy home loans that recently entered forbearance, meaning borrowers have stopped making payments, the people said.

That would help nonbank mortgage companies that lend to home buyers and then quickly sell the loans to Fannie and Freddie.

The strategy was upended recently when Fannie and Freddie announced they would no longer buy loans in forbearance, leaving the debt piling up on the books of the lightly regulated companies that both originate and service home loans.

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Details were still being ironed out, though FHFA was expected to announce a change as early as this week, the people said.

The agency has resisted pressure from the industry and members of Congress to help the servicers, saying it wants to see more data on the number of borrowers who are skipping their monthly payments.

“We are aware of the issue,” said Raphael Williams, a spokesman for FHFA. “Currently, we are working to find out the breadth of the issue and possible solutions.”

The mortgage companies are facing a severe cash crunch for another reason: they must continue paying investors in the loans even if homeowners suspend their monthly payments.

Millions of Americans are skipping mortgage payments as the coronavirus pandemic causes unemployment to soar.

As part of the $2 trillion stimulus package, the federal government allowed homeowners harmed by the outbreak to suspend payments for as long as a year without penalty. As of April 12, 5.95% of home loans were in forbearance, up from 3.74% on April 5, according to data released by the Mortgage Bankers Association on Monday.

That has put the squeeze on the mortgage companies, which will be on the hook for tens of billions of dollars in mortgage payments over the coming months, according to industry estimates.

Some industry officials say the move to restrict Fannie and Freddie from purchasing loans in forbearance helped fuel uncertainty over the cost of servicing new mortgages, causing a tightening of lending standards that has made it difficult for all but the most creditworthy borrowers to get a home loan.

Related video: How Fannie and Freddie Prop Up America's Favorite Mortgage

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