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Forbearance Penalties Are Making Things Harder for Low-FICO, First-time Borrowers
Thursday, July 23, 2020
The Urban
Institute (UI) is speculating that a new penalty imposed on loan originators and
arising out of the COVID-19 forbearance plans is beginning to significantly
tighten the credit box. A paper written by analysts Laurie Goodman and Michael
Neal says that mortgages are considerably more difficult to get than they were
four months ago, and this is disproportionally affecting first-time, Black, and
Hispanic homebuyers. The Federal
Housing Administration (FHA) and the GSEs Fannie Mae and Freddie Mac have all
imposed a penalty on lenders whose loans go into forbearance before they are
delivered to Ginnie Mae, the agency that securitizes FHA and VA loans, or the
GSEs. Ginnie Mae and the GSEs insure or guarantee more than 70 percent of the
outstanding mortgages in the United States. Fannie Mae and
Freddie Mac now place an additional delivery fee of 5 percent for first-time
homebuyers and 7 percent for all other purchase borrowers and rate-and-term
refinances. Cash-out refinances that are in forbearance are not saleable at
all. The FHA requires its servicers to absorb 20 percent of the eventual loss
if the loan misses two payments in the first two years.
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