By the Numbers
Extended FHA forbearance reduces MIP risk but spooks CRT
This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors.
The FHA has extended its forbearance program beyond the original October 1 sunset, reducing the risk of a MIP cut but spooking some investors in Freddie Mac credit risk transfers. FHA forbearance will now remain available until the Covid-19 national emergency ends. Borrowers now can apply for an initial six months of forbearance and another six months later. Borrowers already in forbearance that have used 12 months or more cannot apply. Expanding forbearance increases potential losses to the FHA’s insurance fund and reduces the risk that the FHA would lower insurance premiums. The Veterans Benefit Administration and the Department of Agriculture also announced similar extensions for their home loan programs. Fannie Mae and Freddie Mac may choose to extend forbearance but have not yet announced any changes. But the latest Freddie Mac CRT counts deferred balances from forbearance as losses, making investors in that deal nervous. CoreLogic analysis shows almost 75% of forbearance plans are set to expire at the end of September. The forbearance extension will not help these borrowers since they all have reached the 18-month maximum forbearance term. Most of these borrowers have missed at least 12 payments. The FHA letter is here and the CoreLogic report is here.
Brian Landy, CFA
1 (646) 776-7795
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