Freddie Mac guides lenders through government freeze
Lenders deliver mortgages even if borrower isn’t receiving income
Freddie Mac is issuing temporary guidance to lenders to minimize disruptions to operations as the nation enters week two of the government shutdown.
The mortgage giant will now allow lenders to deliver mortgages to Freddie Mac when the borrower is not receiving a paycheck as a result of the federal freeze — provided the loan meets certain requirements and the lender expects the borrower to return to work when the government reopens, a bulletin from Freddie says.
"Today’s bulletin is intended to give lenders the certainty to continue approving and delivering new mortgages that meet Freddie Mac guidelines to eligible borrowers, such as federal employees and contractors, during the temporary shutdown," explained Freddie Mac executive vice president of single-family business Dave Lowman.
He added, "We are also reminding servicers of our forbearance options to assist qualified homeowners with Freddie Mac mortgages to minimize the shutdown’s impact on our nation’s families and communities."
Freddie Mac also is offering mortgage relief policies to public and private sector employees affected by the government halt, meaning servicers can provide eligible borrowers forbearances that must not be reported to credit bureaus.
Forbearances can last from three to 12 months, depending upon the borrower’s individual circumstances, the enterprise noted.
Since the Internal Revenue Service is unable to process tax return forms and similar transcript requests, servicers can accept a borrower’s most recent signed federal tax return when such documentation is needed to evaluate a borrower for either the Home Affordable Modification program, standard modifications or other loan workout options.
The government shutdown is slowly impacting the mortgage industry, with more lenders creating momentary bypasses to approve loans.
The biggest hurdle is the halt in verifying a borrower’s income directly from the IRS using the required 4506-tax transcript, which is now hard to get with the shutdown in effect.
Recently, Mortgage Bankers Association Dave Stevens said that any glitch in the loan process, especially in relation to closings, is a problem.
The glitches surface whenever lenders discover they are unable to obtain certain information from the government — or when it's a government-insured loan in the pipeline.
Overall, it’s critical to note that a shutdown will have negative impacts on the markets, but the extent of this impact is unknown.
For now, both Fannie Mae and Freddie Mac have issued lender guidance and have both stated that both enterprises will adjust accordingly as Congress continues to attempt to find some sort of compromise.