Fannie Mae and Freddie Mac can develop the probabilities for deep misery

Most distressed government sponsored corporate borrowers were able to resume payments by adding those who had suspended them to the end of their loans. However, others will need lower payments in the long run, possibly in excess of the average figure of more than 20%, if the GSEs' standard modification offers are not followed, executives said at a Mortgage Bankers Association virtual event Thursday.

This suggests that even the GSEs, which are among the lowest indulgence rates in the market, face significant numbers of borrowers facing significant financial setbacks after the pandemic ends.

“The payment suspension solution was very, very effective. We believe it will continue to be effective in 2021. I think many of these borrowers will likely need a little more, ”said Kevin Palmer, senior vice president of single-family home portfolio management at Freddie Mac.

Freddie Mac plans to provide the payment interruption that the standard Flex modification provides, but Fannie Mae is considering whether anything beyond that is needed, said Malloy Evans, senior vice president and chief credit officer for single family homes.

"It should be a great solution for many people who have been in Forbearance longer, may be more affected, and are unable to go back to their existing payment," said Evans. "But we kept an eye on Flex Mod to make sure it was a workable solution for these people, or do we need to make any tweaks?"

Of course, not all GSEs borrowers are so desperate and many have gotten back on track.

For example, Fannie Mae has been indulgent more than 1.3 million since the pandemic broke out. As of year-end 2020, more than 780,000 left that group, with 95% going back up to date or getting paid in full, Malloy said.

However, broader indicators of late payment and forbearance show that while there are fewer emergencies overall, there is also a larger group with payment blocks longer than 90 days who could face longer-term financial problems.

Over time, the forbearance exits may become more difficult and new options may be needed to deal with it, Palmer said.

"The solutions that worked well in 2020 may not work as well in 2021," he said.

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