Fannie and Freddie will start buying riskier mortgage loans to ease rising housing-market stress

• Fannie Mae and Freddie Mac will begin buying home loans in forbearance to ease lending stresses in the mortgage market, the Federal Housing Finance Agency announced Wednesday.
• The government-sponsored enterprises previously avoided the loans, but eased forbearance criteria set out in the CARES Act are set to increase requests for payment deferrals.
• The waiting period between a mortgage closing and the loan being sold to either enterprise can last weeks, leaving lenders with little help in offloading the debt.
• Visit the Business Insider homepage for more stories.

The Federal Housing Finance Agency announced Wednesday that Fannie Mae and Freddie Mac will ease rules for mortgage servicers and buy up loans that slipped into forbearance.

Firms that create mortgages sell the loans to government enterprises including Fannie and Freddie. The waiting period between a mortgage closing and the loan being sold to Fannie or Freddie can last weeks, leaving some loans entering forbearance as borrowers requested late payments.

Fannie and Freddie previously avoided such loans, but the coronavirus' broad economic impact and hit to the US housing sector placed a considerable strain on the key lending market. The policy change will allow Fannie and Freddie to alleviate some credit stresses and temporarily buy the mortgages, according to FHFA.

"We are focused on keeping the mortgage market working for current and future homeowners during these challenging times," Mark Calabria, FHFA's director, said in a statement. "Purchases of these previously ineligible loans will help provide liquidity to mortgage markets and allow originators to keep lending."

Read more: The CIO overseeing $270 billion at Guggenheim says stocks will plunge another 27% from current levels — but lays out a series of recommendations for bargain-hungry investors

The government's $2 trillion relief package allowed all homeowners with federally backed mortgages to be eligible for up to one year of forbearance. The FHFA rule change will lift lending limits for firms as more Americans are likely to request deferred payments.

More than 3 million loans already sit in the government's forbearance program, leading the firms to buy only mortgages meeting strict criteria. A loan has to have closed between February 1 and May 31, and must either be a mortgage purchase transaction or a no-cash-out refinance. Loans more than 30 days delinquent won't be eligible.

Fannie and Freddie will also change loan prices for participating borrowers to counteract heightened risk taken on by the enterprises. First-time homebuyers will see a 5% loan-level adjustment, while non-first-time buyers take on a 7% shift.

Now read more markets coverage from Markets Insider and Business Insider:

Treasury Secretary Mnuchin sees most of the economy reopening by the end of August

JPMorgan's quant guru says US stocks will climb back to record highs in the first half of 2021

Morgan Stanley reveals 17 energy stocks to buy now that the price of oil has collapsed — and which ones to avoid