A New Mortgage Penalty Is Blocking Homeownership and Refinancing Opportunities for 255,000 Borrowers

Brief

A New Mortgage Penalty Is Blocking Homeownership and Refinancing Opportunities for 255,000 Borrowers

Abstract

The current unprecedented pandemic-related surge in mortgage forbearances recently prompted the Federal Housing Administration (FHA) and the Government Sponsored Enterprises (GSEs) to impose a new penalty on lenders whose loans go into forbearance before they are delivered to Ginnie Mae or the GSEs to be packaged into securities. In response, lenders have added additional filters to their underwriting process in an attempt to weed out any borrowers who might quickly go into forbearance on their new mortgages and trigger this penalty. The recent addition of these overlays has significantly constricted the credit box in the past three months, threatening to block approximately 255,000 borrowers from mortgage access. We estimate that the total income the government could derive from this penalty is $53.4 million, an amount too low to be worth blocking access to historically low mortgage rates for more than a quarter of a million borrowers at this time of severe financial instability.

Centers

Cross-Center Initiative

Cross-Center Initiative: 
To reuse content from Urban Institute, visit copyright.com, search for the publications, choose from a list of licenses, and complete the transaction.
LATEST IN Housing and Housing Finance
To reuse content from Urban Institute, visit copyright.com, search for the publications, choose from a list of licenses, and complete the transaction.