Legislation would require the purchase and insurance of COVID-19 forbearance loans without additional conditions | Ballard Spahr LLP
Accompanying bills were recently introduced in the United States House of Representatives (HR 6794) and the US Senate (S. 4260) to create the Promoting Access to Credit for Homebuyers Act, 2020.The law would require Fannie Mae and Freddie Mac to purchase, and FHA to insure, mortgages involving forbearance from COVID-19, or a request or investigation of such forbearance, with no additional conditions attached to the forbearance, request or investigation.
As previously reported, Fannie Mae and Freddie Mac will buy certain mortgages in a COVID-19 forbearance. However, one of the conditions is an additional five percent price adjustment if the borrower is a first-time home buyer and seven percent for other loans. And FHA will assure certain COVID-19 forbearance mortgages subject to conditions, including that the lender signs a two-year partial indemnity agreement.
The Act would apply to a borrower with a loan contracted on or after February 1, 2020 and who, with respect to a previous mortgage loan or his current mortgage loan:
- Has abstained following financial difficulties due, directly or indirectly, to the COVID-19 emergency;
- Requested forbearance due to financial hardship due, directly or indirectly, to the COVID-19 emergency; or
- Asked about options for forbearance following financial hardship due, directly or indirectly, to the COVID-19 emergency (a “covered borrower”).
With respect to a mortgage loan made to a covered borrower, during the period which begins five days after the coming into force of the Act and ends 60 days after the covered period (discussed below), Fannie Mae and Freddie Mac could not, solely because of the borrower being a covered borrower, establish a purchase requirement that:
- Impose additional restrictions that are not applicable to loans in a similar situation whereby the borrower does not forbear;
- Impose a guarantee fee or a price adjustment at the level of higher loans, or in any other way modify the prices of these loans, in relation to similarly situated loans where the borrower is not in abstention;
- Apply redemption requirements to these loans which are more restrictive than the redemption requirements applicable to loans in a similar situation whereby the borrower does not forbear; or
- Demand compensation from the lender for these loans, only because of the borrower’s forbearance.
Fannie Mae and Freddie Mac would still be able to establish additional requirements to ensure that a borrower did not lose their job or income before a mortgage closes. The period covered would be the period during which the borrower, with regard to a mortgage loan, can request an abstention under the CARES Act.
With respect to a mortgage made to a covered borrower, during the period that begins five days after the law comes into force and ends 60 days after the covered period (discussed above), the FHA does not could not, only because the borrower is a covered borrower:
- Refuse the provision of mortgage loan insurance;
- Implement additional premiums or modify the prices of such a loan;
- Demand compensation from the lender; or
- Establish additional restrictions on the borrower.
The FHA would still be able to establish additional requirements to ensure that a borrower has not lost their job or income before a mortgage is closed.
The law would also impose reporting obligations on the Federal Housing Finance Agency (FHFA), Fannie Mae, Freddie Mac, HUD and the Government Accountability Office. In particular, the FHFA could not increase guarantee fees, loan price adjustments or any other fees, or implement restrictions on access to credit, unless the FHFA provided 48 hours of this increase or restrictions in the House Committee on Financial Services and the Senate Committee on Banking, Housing and Urban Affairs. Along with the opinion, the FHFA should provide a detailed report on the political rationale for the decision, including all data taken into account in the decision making.