Borrowers now have the option of simply deferring any forborne payments to the end of their mortgage. In effect, this would work like an interest-free second mortgage, and would become due when the house is sold or the loan is refinanced.
KBW believes the Freddie announcement could improve valuations for mortgage servicing rights “as the market reduces its expectations for potential servicing advance costs.”
Since March, spreads between SOFR and the three-month LIBOR have widened to roughly 80 basis points. The five-year average, which the ARRC recommends as a “spread adjustment,” is only 27 bps.
The new policy applies to borrowers who can afford to resume making their regular monthly mortgage payments, but are unable to cover the remittances they missed during forbearance...
The GSEs’ showing in the first quarter only reflects one full month of the impact of the coronavirus crisis. As potentially millions more homeowners stop paying their mortgages, the enterprises face the prospect of an even more challenging second quarter. (Includes data chart.)
Freddie Mac believes the market for credit-risk transfers may never return to pre-COVID levels because of the potential impact of the pandemic on mortgage performance.