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Forbearance is Major Cause of Lender Overlays

Posted To: MND NewsWire

In his analysis of current mortgage credit tightening for the Joint Center on Housing Studies excerpted here earlier, Don Layton included a special section on lender overlays . The former Freddie Mac CEO focused specifically on how those overlays may be affected by the borrower forbearance mandated by the CAREs Act for borrowers impacted financially by the COVIC-19 pandemic. During and after the 2008 housing crisis mortgage intermediaries (originators) added their own underwriting requirements to those required by the GSEs, FHA, and the VA. These overlays were designed to counter “representation and warranty risk,” – i.e., the possibility they would be required to buy back and possibly absorb default losses from loans they sold to the government agencies that lacked characteristics required…(read more)

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