© 2020 Arizent. All rights reserved.

FHFA directs GSEs to do more to support MBS, mortgage lending

Register now

The Federal Housing Finance Agency authorized the government-sponsored enterprises to lend additional support to the mortgage-backed securities market and temporarily allow some flexibility in lending requirements to address coronavirus-related concerns.

The support Fannie Mae and Freddie Mac is giving to the agency MBS market will come in the form of additional dollar-roll transactions, which investors use to obtain short-term financing for their positions. The trades must be conducted through an auction or other method that ensures a fair market price, according to the FHFA's order.

Dollar rolls are transactions in which there is a simultaneous agreement to sell a security held in portfolio with a purchase of a similar security at a future date at an agreed-upon price.

The FHFA's move came the same day the Federal Reserve announced additional support for the economy that included purchasing more MBS and Treasury bonds as well as establishing two new credit facilities for large businesses.

Meanwhile, the FHFA is directing Fannie and Freddie to relax underwriting guidelines in ways that will reduce the need for appraisers to inspect the interior of homes in person as well as the need to obtain verbal verifications from employers.

Where verbal verifications are not available, emails, a recent year-to-date pay stub or recent payroll deposit on a bank statement can be used for verification.

"Lenders should continue to utilize sound underwriting judgment to ensure these alternatives are appropriate to the borrower's circumstance," the FHFA said in a press release.

Even before the virus outbreak, both Fannie Mae and Freddie Mac had been allowing more exceptions to employment verifications and appraisal requirements due to the availability of alternative forms of data-based confirmation that they deemed sufficient in some instances.

For reprint and licensing requests for this article, click here.
FHFA GSEs MBS Appraisals Underwriting Secondary market Capital markets Coronavirus
MORE FROM ASSET SECURITIZATION REPORT