TheMReport — News and strategies for the evolving mortgage marketplace.
Issue link: http://digital.themreport.com/i/1501025
MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 70 J O U R N A L June 2023 FHA PROPOSES NEW MORTGAGE PAYMENT REDUCTIONS T he Federal Housing Administration (FHA) is seeking feedback on a new proposal for a home retention option to help struggling homeowners meet their mortgage obligations. The new option, the Payment Supplement Partial Claim, would allow mortgage servicers to use the FHA Partial Claim both to bring a borrower's mortgage current and to provide temporary reductions to their monthly mortgage pay- ments for up to five years. The rapid and steep interest rate increases of the past year have limited the effectiveness of some of FHA's existing loss mitigation options in assisting borrowers. Just last week, Freddie Mac reported the 30-year, fixed-rate mortgage (FRM) hitting an average of 6.57%, amid ongoing financial volatility. "Many homeowners continue to experience hardships due to health or financial difficulties that occurred during the pandemic, and these challenges have been exacerbated for these and other borrowers by current economic uncertainties," said Assistant Secretary for Housing and Federal Housing Commissioner Julia Gordon. "When we saw that our existing loan modifications were no longer providing adequate payment relief, our team painstakingly explored every possible alternative to provide relief in the current rate environment, resulting in this innovative proposal." FHA's loan modification option, which has historically reduced borrowers' monthly payments to levels they can afford, is no longer as effective as it once was because borrowers are forced to modify at market rates that may be higher than their current rates. The Payment Supplement Partial Claim will allow homeowners experiencing a hardship who are unable to obtain a significant payment reduction with other loss mitigation options to keep their existing interest rate, and reduce their monthly payment temporarily using funds from the FHA Partial Claim, which is a subordinate zero interest lien. The homeowners then pay FHA back when they sell their home or refinance. According to HUD, since the start of the COVID-19 pandemic, mortgagees have provided in excess of 1.3 million COVID-19 loss mitigation actions to borrowers. On January 30, 2023, HUD extended and expanded its COVID-19 Loss Mitigation Options. To facilitate FHA's review and analysis of feedback, interested stakeholders are encouraged to thoroughly review the content of the Draft ML and use the Feedback Response Worksheet to provide feedback through June 30, 2023: » View the Draft ML, Payment Supplement Partial Claim. » Download the Feedback Response Work- sheet and add any feedback to it. » Email the completed worksheet to sf- feedback@hud.gov with the subject line: "Feedback for Draft ML Payment Supple- ment Partial Claim." FITCH PLACES GSES ON 'RATING WATCH NEGATIVE' F itch Ratings has placed Fannie Mae's and Freddie Mac's 'AAA' Long-term Issuer Default Ratings (IDRs), 'F1+' Short-term IDRs, Government Support Ratings (GSRs) and debt ratings on Rating Watch Negative (RWN). These rating actions follow Fitch's placement of the United States' 'AAA' Long-term Foreign and Local Currency IDRs on RWN on May 24, 2023. As the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac benefit from implicit government support. Fannie Mae's and Freddie Mac's Long-Term IDRs and GSRs are directly linked to the U.S. sovereign's Long-Term IDRs, based on Fitch's view of the U.S. government's direct financial support of the two housing GSEs. The placement of the housing GSEs' ratings on RWN reflects the uncertainty surrounding the resolution of the RWN on the U.S. It is also unclear at this time what level of support the housing GSEs can expect if the U.S. rating were to drop to 'Restricted Default (RD)'. The rating linkages are further detailed in Fitch's report "GSE Rating Linkage to the U.S. Sovereign." If Fitch were to downgrade the U.S. sovereign to 'RD' due to debt ceiling challenges, it would not necessarily lead to an immediate downgrade of the housing GSEs' ratings to 'RD', provided the housing GSEs continued to perform on their respective obligations. Fitch notes that the repayment of the GSEs' obligations stems primarily from cash flows from operations, as opposed to direct reliance on the federal government. The housing GSEs continue to benefit from meaningful financial support from the U.S. government. Fitch aligns the GSEs' ratings to the U.S. rating due to their mission critical function to the U.S. housing finance system and the U.S. Treasury's Senior Preferred Stock Purchase Agreement (SPSPA). Fitch believes Fannie Mae and Freddie Mac continue to execute on their mission to provide liquidity, stability, and affordability to the housing finance industry. Under the SPSPA, the U.S. Treasury is required to inject funds, up to the dollar amounts of the terms of the agreement into Fannie Mae and Freddie Mac to maintain positive net worth, so that each firm can avoid being considered technically insolvent by their conservator, the Federal Housing Finance Agency (FHFA). On March 31, 2023, Fannie Mae's net worth stood at $64 billion, and Freddie Mac's stood at $39.1 billion. The current amended version of the SPSPA allows the GSEs to retain capital until they each meet minimum capital levels that would be required prior to exiting government control. The Treasury and FHFA have the ability to amend the SPSPAs bilaterally, and following a Supreme Court decision in 2021, leadership at both the Treasury and FHFA serve at the President's will. In particular, changes to the SPSPAs that negatively affected the GSEs' ability to raise capital organically could strengthen the government's control over the GSEs by cutting off their ability to grow capital, which could create challenges for future administrations to release the GSEs from conservatorship. Fitch recently placed the U.S. "AAA" on RWN, signaling that it could downgrade U.S. debt if lawmakers did not agree on a bill that would have raised the Treasury's debt limit. In the future, if Fitch views government support as reduced, particularly through housing finance reform efforts, the ratings of the GSEs could be delinked from the