FHFA Announces Four-Month Limit to Servicer Fannie Mae Advance Obligations

On April 21, 2020 the Federal Housing Financing Agency (FHFA) announced the alignment of Fannie Mae and Freddie Mac policies so that, once a mortgage servicer has advanced four months of missed payments on a loan, it will have no further obligation to advance scheduled payments on the loan.

FHFA notes that, when a loan is in a mortgage-backed securities pool, Fannie Mae requires that servicers under a scheduled remittance arrangement advance scheduled principal and interest payments, and that Freddie Mac generally requires that servicers advance up to four months of scheduled interest payments. The new policy will cap a servicer’s advance obligations with Fannie Mae loans to four months of payments.

As previously reported, FHFA Director Mark Calabria had downplayed the extent of the servicer advance obligation that would result from mortgage payment forbearances under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which drew a strong response from the Mortgage Banker Association. There is growing bipartisan support in Congress for the federal government to provide liquidity assistance to residential mortgage loan servicers.

FHFA also announced that it is instructing Fannie Mae and Freddie Mac to maintain in mortgage-backed securities pools loans that are subject to a CARES Act forbearance for at least the duration of the forbearance plan. Loans in CARES Act forbearance plans will be treated as loans subject to a natural disaster event, and thus will remain in a pool despite the typical policy of Fannie Mae and Freddie Mac to purchase a loan out of a pool once it becomes delinquent for more than four months.

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