For borrowers with a tolerance, Fannie Mae and Freddie Mac discuss their eligibility for new loans | Ballard Spahr srl
On May 19, 2020, Fannie Mae in an update of Lender Letter 2020-03 and Freddie Mac in Bulletin 2020-17 announced temporary eligibility conditions for new purchase and refinancing transactions involving borrowers affected by the COVID-19 pandemic who are or have been forborne with their existing mortgage . The Federal Housing Finance Agency has also published a Press release, with the director of Calabria declaring that this “action allows homeowners to access record mortgage rates and keeps the mortgage market functioning as efficiently as possible”. Sellers must apply the new eligibility policies to loans with application dates after June 2, 2020 and can apply the policies to applications already in progress.
For a borrower with an existing mortgage that is current as of the new mortgage note date, the standard Fannie Mae and Freddie Mac eligibility criteria will apply. An existing mortgage will be considered current on the date of the new mortgage note if the borrower has made all mortgage payments due during the month preceding the date of the note on or before the last business day of that month. Freddie Mac also expressly notes that these borrowers may not be in a repayment plan, loan modification trial period plan, deferral of payment, or subject to any other loss mitigation program.
If a borrower has resolved the missed payments on an existing mortgage loan through reinstatement, the only additional eligibility requirements are that, if the reinstatement that was made after the application date and before the note date of the new loan mortgage, the seller must document the source of funds used for reinstatement, and the proceeds of the new loan cannot be used for reinstatement.
If the missed payments on an existing mortgage have been or will be resolved through a loss mitigation option, the borrower must meet the applicable additional eligibility requirements described below:
- If the borrower is subject to a repayment plan, the borrower must have (1) made three payments under the plan or (2) completed the plan, whichever comes first (the plan need not be actually completed). Freddie Mac adds that the borrower must be performing well and not have missed any payments under the plan. Freddie Mac also notes that the proceeds from the new mortgage can be used to pay off remaining payments under the repayment plan.
- If the borrower is deferred, the borrower must have made three consecutive payments following the effective date of the deferral agreement. Freddie Mac adds that the payments must have been made on time and notes that the proceeds from the new mortgage can be used to pay off the deferred amount.
- If the borrower is on a trial modification, the borrower must have completed the three month trial payment period.
- If the borrower is subject to another loss mitigation solution, the borrower must have (1) successfully completed the loss mitigation program or (2) made three consecutive full payments in accordance with the program. Freddie Mac adds that the borrower must be successful and not have missed any payments under the program.
Fannie Mae indicates that the temporary policies do not apply to high LTV refinancing loans, and Freddie Mac indicates that the temporary policies do not apply to enhanced relief refinancing.® Mortgages.