I talked weeks ago about the struggles in the mortgage market from a variety of angles. These were mostly driven by aggressive Fed buying of MBS that was hurting hedges that lenders had put on to offset rate locks and by forbearance allowances with no evidence of hardship needed and possibly up to one year which then squeezed services that had to extend money to the MBS holders with no money from the borrowers.
On the first issue, the Fed has slowed its purchases of MBS which has alleviated some of this pain. On the 2nd, the FHFA FINALLY announced today a plan where servicers would only have to extend money to lenders (MBS holders) for no more than 4 months. Then, Fannie and Freddie would immediately take over (before, the servicers would have to pay up for up to 12 months before finally getting reimbursed by Fannie and Freddie).
Those choosing to forbear is now up to almost 6% of home loans as of April 12th based on MBA data seen yesterday vs 3.7% on April 5th.
The other issue is that many loans recently made are quickly entering forbearance BEFORE they were offloaded to Fannie and Freddie and which then resulted in Fannie and Freddie backing off from buying loans that had gone this way. Thus, clogging up the pipes again and leaving these loans on the books of the mortgage originators and then crimping the availability of new money to create new loans.
So, in response to this the FHFA is now looking into allowing (or we can say ‘encouraging’) Fannie and Freddie to buy newly issued mortgages that have gone into forbearance.
The end result of all of this is a slower pace of mortgage origination on top of the stress that many are experiencing in terms of jobs, income and the supply of homes.