TLDR: mortgage services with Fannie/Freddie-backed mortgages only have to front 4-months of missed mortgage payments on behalf of the homeowner in forbearance/default.. after that brrrrrrrrrrrrrrr
This is meant to be a discussion – I’d love to hear both bear and bull cases on this
I was convinced for a while that a mortgage default reckoning was in our future when forbearance ends.. sadly for gay bears.. money printer really does go brr
Fannie and Freddie..
“When a mortgage loan is in a Mortgage-Backed Security (MBS), Fannie Mae servicers with a scheduled payment remittance are responsible for advancing the principal and interest payment regardless of borrower payments. Freddie Mac servicers, who are generally responsible for advancing scheduled interest, are only obligated to advance four months of missed borrower interest payments. Today’s instruction establishes a four-month advance obligation limit for Fannie Mae scheduled servicing for loans and servicers which is consistent with the current policy at Freddie Mac.”
Fannie and Freddie don’t make loans, but instead buy them from banks and other lenders. They package them into securities that are sold to other investors and provide guarantees to make those investors whole when loans default.
At present, the companies have access to a combined $258 billion in Treasury assistance under the terms of their 2008 government-backstop agreements.
“Over the past two months, agency mortgages represented approximately 98% of total RMBS issuance, up from 91% in all of 2019″
The “agency” segment includes all bonds with some form of government backing, a massive $6.9 trillion market that some view as a surrogate for U.S. Treasury debt, since their guarantees make their risk of default nearly as low as those of U.S. Treasurys.”
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.