Fannie Mae and Freddie Mac (the GSEs) are trying to sort out ways to implement several major changes imposed on them from outside sources. Freddie Mac recently issued updates to its Seller/Servicing Guide to comply with the Revised General Qualified Mortgage Rule announced by the Consumer Financial Protection Agency (CFPB). This rule was promulgated to replace the so-called GSE Patch which is due to expire soon.

The complete of Seller/Servicer Guide changes are available here. However, Freddie Mac reminds lenders that, while CFPB has delayed implementation of its Revised Rule until October 1, 2022, most loans originated under the GSE Patch will not be eligible for sale to Freddie Mac if they have application dates on or after July 1, 2021 or settlement dates after August 31, 2021 unless they also meet the requirements of the Revised General QM Rule. The exception will be single closing construction financing with Application Received Dates prior to July 1, 2021. These loans will be eligible to sale to Freddie Mac without meeting the Revised General QM Rule.

Freddie Mac has also introduced a new page on its website attempting to clarify the impact of the amendments made by the U.S. Treasury Department and the Federal Housing Finance Agency (FHFA) to the Preferred Senior Purchase Agreement (PSPA).

FHFA and Treasury announced the amendments on January 14, 2021. The more impactful changes limit the ability of the GSEs to acquire certain mortgages. The first category is loans secured by second home or investment properties. Those loans are limited to 7 percent, a limit measured by the GSEs' unpaid principal balance on a 52 week rolling average.

To comply with these restrictions, Freddie Mac is announcing it will no longer (as of April 15) purchase non-Loan Product Advisor mortgages secured by second home or investment properties that are submitted and resubmitted to Loan Quality Advisor and receive a "Yellow" risk assessment. They must receive a rating of "Accept."

The amendments also limits the GSE's purchase of loans with layered risk to 6 percent for such purchase loans and 3 percent for a refinance. These percentages are measured in the same manner as investment and second home loans. Layered risk is defined as a loan having two of three risk characteristics:

  • A combined loan-to-value (CLTV) ratio exceeding 90 percent.
  • A debt-to-income ratio over 45 percent
  • A FICO score under 680.

As of May 1, these loans ceased being eligible for purchase by Freddie Mac if manually underwritten. They must be processed through Loan Advisor and receive an "Acceptable" assessment.

The PSPA amendments also place a limit of $1.5 billion on the cash purchases of mortgages from a single seller and its affiliates over any four-quarter period. This limitation was set to begin on January 1, 2022 and Freddie Mac says the change has prompted many of its sellers to convert to Guarantor or increase the volume of their Guarantor business as an alternative to selling for cash.

FHFA has now issued additional guidance to Freddie Mac (and presumably to Fannie Mae) changing the date of the cash limit for certain sellers to July 1, 2021. Freddie Mac says it has already reached out to those who are affected, and those sellers are in the process of updating their purchase documents.

Not all sellers will be limited by the $1.5 billion threshold but sellers who wish to convert to guarantor can find information on doing so here.

It is clear from the information coming out of Freddie Mac that they do not expect these are the last changes that will be prompted by the new QM Rule or the PSPA changes. Stay tuned.