Hannah Lang

Lenders implemented stricter underwriting across all loan types in the first quarter as the pandemic upended the economy, the Federal Reserve said in its survey of loan officers.

The Home Loan bank will make zero-interest loans, match charitable donations that members make to nonprofits and small businesses, and provide additional funding for economic development grants.

Fannie Mae and Freddie Mac are now able to buy loans in forbearance to alleviate pressure on the sector, but the fees charged by the mortgage giants to assume more risk could turn away some originators.

The Federal Housing Administration has provided struggling homeowners with payment flexibility and explored other measures. At the same time, the agency is mindful of protecting itself against downside risks.

The policy move will allow small institutions participating in the Paycheck Protection Program to pledge business loans as collateral to obtain advances.

The FHFA will allow Fannie Mae and Freddie Mac, for a limited time, to purchase loans for which the borrower has sought to postpone payments because of the economic effects of the coronavirus.

Efforts to calm lenders’ fears about coronavirus-related forbearance may not offset tightening standards, and the FHA is less likely to boost volume than it was during the financial crisis.

Tenants have threatened to suspend payments during the pandemic to pressure officials into providing rental assistance, but the effects on multifamily loans would compound concerns about servicers' liquidity and, ultimately, lenders' performance.

Federal Housing Finance Agency Director Mark Calabria said a virus-induced financial crisis might give rise to more delinquencies and foreclosures than the 2007 subprime mortgage meltdown.

The central bank's sweeping actions suggest a cash shortage gripping sectors directly hit by the pandemic. Banks were supposed to be protected by Dodd-Frank but are still vulnerable to a funding domino effect.