Earlier today, FHFA issued a press release outlining a forbearance program for both Fannie & Freddie. From what I've read, Freddie will extend a 3 month pause on all P&I + reserve which will be repaid over a 12 month installment period.
There are a couple of provisions, with the most glaring being that evictions are prohibited throughout the forbearance period.
Interested to hear what you folks think of this.
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Pair this with the fact that the FOMC is about to purchase Agency CMBS for the first time, per this Commercial Observer article.
https://commercialobserver.com/2020/03/fed-promises-aggressive-measures…
https://www.newyorkfed.org/markets/opolicy/operating_policy_200323
I saw that this morning. Fannie Mae MBS spreads blew out close to a 100% today as liquidity continues to dry up, and that's for government backed paper...
My gut instinct is that this will do little to restore short term confidence. Forbearance will only be a success if LL's are able to recoup 3x rental income as well. I just don't see this being the fix.
So your gut instinct is totally wrong....agency spread recovered all the way back in 3 weeks
I wouldn't necessarily agree that GSE spread recovery = a resurgence in short term confidence. Agency spreads recovered because of initial FED buying which is now partial buying & an implied backstop, but the greater CMBS issuance market is frozen because the FOMC cannot buy newly issued, non-GSE, CMBS bonds. So if the new normal is that FED buying = investor confidence, then yes I was totally wrong.
Fed isn’t buying any newly issued agency CMBS paper either, and Fed has only been buying DUS this week, yet Freddie A2 is back to February’s all time tight level
Also Fannie released its list of forbearance last week and guess what, only 4 loans on that list
https://www.newyorkfed.org/markets/domestic-market-operations/monetary-…
1) FED has been buying DUS since 3/27. They purchased the entire $1B offering on that date, and then committed $6.4B to a $1.5B offering on 4/2. That pledge to fund 300% of what was needed on 4/2 was the FED sending a huge message to the DUS market that they will backstop the entire thing.
2) Per the link, FED has been buying Agency CMBS, although far less than DUS since each K-Series is an aggregation vs DUS single asset securities. IMO, that's just Freddie putting their head in the sand and being reactionary to DUS (which they can afford to do since their securitizations are delayed in comparison)
3) I have not seen the said list, but yes overall Fannie forbearance is low because (a) they institute a cash sweep (b) government stimulus and super-unemployment has managed to keep things relatively afloat & (c) servicers are doing everything they can to disincentivize forbearance because they would still be on the hook to the DUS investor.
So is this a complete forbearance/grace period that shifts the maturity date by 3 months?
Or is this more of a deferral where there is a payment "catch up" and the maturity date remains the same.
Keeps the maturity date the same. The 3 months of P&I that they can defer will be paid back over 12 months, in equal installments.
Futher update to agency world.
Fannie is going to be instituing an interest reserve, up to 12 months of P&I payments for all loans >$6M. On the the top end, for tier 2 product, property will need to perform at a 1.25 DSCR for two quarters before the reserve is distributed.
Crazy times ahead.
So I work for an agency lender. Sounds like this could lead to layoffs? Pretty scared rn.
Stay strong. On the bright side, you're not at a debt fund...
The agencies are going to stay in the market, and deals will need to be financed. Just realize that the status quo sales pitch of income/rent/population growth is going to need to change. This is an opportunity to be an advisor.
Will these current conditions have negative impacts on Fannie/Freddie?
https://www.ft.com/content/575e818e-c35a-462b-8daa-ab784163f604
Yes, question is a matter of degrees.
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