- Loan services being slammed by homeowners’ requests to delay monthly mortgage payments
- One of industry’s top regulators rejects servicers’ calls for help
This is the third piece in an ongoing war of words concerning mortgage servicers’ needs for relief regarding the CARES Act forbearance program for homeowners.
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Our first piece summarized a letter signed by the top mortgage servicers in the country, both banks and non-banks, asking for relief due to the overwhelming demand of homeowners applying for the mortgage forbearance package within the Coronavirus Aid, Relief and Economic Security Act (CARES) as the coronavirus forces millions and millions of Americans out of work.
The CARES Act includes a mandate that all borrowers of government-backed securities (Freddie Mac and Fannie Mae), approximately 62% of all first lien mortgages according to the Urban Institute, be allowed to defer their monthly mortgage payments for at least 90 days and up to one year. Mark Calabria, director of the Federal Housing Finance Agency that oversees Fannie and Freddie, said last week that he estimated that perhaps 2M borrowers could miss payments and apply for forbearances by the end of May.
Turns out, according to a report by the Mortgage Bankers Association (MBA) that the number of borrowers who have already requested forbearance from the mortgage servicers has already topped 2M as of the beginning of April.
Mortgage servicers collect borrowers’ monthly mortgage payments and are also required to pay investor bondholders on those payments, whether or not the borrowers pay their mortgage. Bottom line…no collected monthly mortgage payments coming in and required monthly bondholder payments going out equals mortgage servicers having to pay investors money they don’t have.
The mortgage servicers, in their letter delivered to Calabria and Congress on Saturday, April 5, pleaded for relief assistance via the establishment of a liquidity facility. Calabria responded on Tuesday, April 7 to the Wall Street Journal that the servicers won’t need any help for at least one year and called their concern “spin.”
The MBA took issue with Calabria’s statement. Calabria then suggested that servicers that were struggling to pay bondholders may have to transfer their servicing responsibilities to larger servicers with the reserves to both grant borrowers forbearances and pay bondholders.
Interestingly, Ginnie Mae, Fannie and Freddie’s counterpart for FHA and Veterans Administration loans ,just announced that it was setting up a liquidity facility for servicers of its loans. Ginnie’s principal executive vice president said, “Owning and servicing mortgage servicing rights is a capital-intensive proposition, and the more avenues that exist for private capital to flow into the system on attractive terms, the easier it becomes to fulfill our mission of bringing global capital into the US housing market, while minimizing risk to the taxpayer.”
How all this plays out is anyone’s guess at this point. Neither the Federal Reserve nor the US Treasury needs Calabria’s permission to open a liquidity facility for Freddie and Fannie.
Jared Seiberg, financial services and housing policy analyst at Cowen Washington Research Group, said, “We see Calabria’s statement to the Wall Street Journal) as counterproductive to efforts to stabilize the economy and housing finance. It is only going to increase concerns about the stability of servicers and reduce the willingness of lenders to originate mortgages, including refinancings. We do not see how that is in the public’s best interest.”
Thanks to CNBC’s Diana Olick.