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FHFA to allow interest rate reductions

Agency says move will help more borrowers with Fannie Mae and Freddie Mac mortgages reduce payments and stay in their homes.

The Federal Housing Finance Agency (FHFA) will allow borrowers with mortgages backed by the government sponsored entities to reduce their interest rates.

The FHFA hopes the move will allow more borrowers with Fannie Mae and Freddie Mac mortgages to reduce their payments and stay in their homes. Borrowers with permanent Covid-19 hardships are eligible for the loan modifications, regardless of their loan-to-value ratio. Previously, only borrowers with a market-to-market loan-to-value ratio of at least 80% were eligible for the reduction. That ratio takes into account the remaining mortgage balance and the home’s current market value.

The agency is allowing the loan modifications in response to the “unprecedented nature of the pandemic,” the federal housing regulator wrote.

“Allowing more families to qualify for an interest rate reduction will prevent unnecessary foreclosures, help strengthen the Enterprises’ books of business, and make sustainable homeownership a reality for more families currently living with the uncertainty of forbearance,” said Sandra Thompson, acting director of the FHFA.

The Biden administration last week appointed Thompson to helm the agency, after it removed previous director and Trump-appointee Mark Calabria. A Supreme Court decision in a case brought by Fannie Mae investors allowed Biden to remove the FHFA director at will.

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The FHFA’s loan modification options come as other federal agencies are implementing other strategies to bolster home retention and guide servicers and borrowers through the end of forbearance.

On Monday, Ginnie Mae, which buys Federal Housing Administration and Department of Veterans Affairs loans, announced it would offer pools of loans with 40-year terms. A HUD official said the move would help borrowers reduce payments.

The same day, the Consumer Financial Protection Bureau (CFPB) laid out detailed procedural safeguards for servicers to carry out as borrowers leave forbearance in the coming months. Mortgage servicers must now take additional steps to allow borrowers time to weigh loss-mitigation options.

The following day, the FHFA said it would require Fannie Mae and Freddie Mac loan servicers to adhere to the rule a full month before it takes effect.

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