After announcements by federal housing agencies that would provide forbearance to borrowers as the COVID-19 pandemic lingers, announcements reinforced by the federal stimulus bill passed by Congress, the servicing industry began to examine options to continue funding operations when borrowers no longer are making regular payments.
The Mortgage Bankers Association called on the Federal Reserve and the Treasury Department to create a separate credit facility to help provide liquidity to the servicing industry over this time. But House Financial Services Committee Chairwoman Maxine Waters (D-Calif.) said that move would not be necessary.
In a statement released after passage of the CARES Act, Waters said servicers already had the access they needed.
“While mortgage servicers have expressed concerns that they will not be eligible to access a Federal Reserve facility to ensure that businesses have access to financing, I believe that H.R. 748 is clear that mortgage servicers, like other businesses, are eligible for this financing,” Waters stated. “Indeed, the Federal Reserve already has sufficient authority to create a facility to ensure that mortgage servicers have liquidity.”
Waters said the bill provided additional authorities to the Federal Reserve as needed.
“H.R. 748 builds on those authorities to ensure the Federal Reserve is responsive to this crisis and its actions complement other provisions in the bill, so Congress expects the Fed will act promptly to establish and implement this facility,” she stated. “Congress also expects that the secretaries of Treasury and HUD, as well as the director of the Federal Housing Finance Agency, will use their robust authorities provided in the legislation and current law to ensure that the time periods allotted for foreclosure moratorium and forbearance are long enough to provide sufficient relief. We do not want homeowners to be forced to resume making payments when the worst economic impacts of the crisis have yet to subside.”
It is not clear, however, that servicers can and do have the access Waters expects they. An MBA spokesman said conversations were continuing, and the association was encouraged to see funding in the stimulus bill that could be leveraged to create a broad and dedicated liquidity facility for servicers.
“We continue to urge the Federal Reserve and U.S. Treasury to create a dedicated financing program to help any residential and commercial/multifamily mortgage servicer who will need assistance in order to provide what we expect to be unprecedented levels of mortgage payment forbearance requests from households with COVID-19-related hardships,” the spokesman told Dodd Frank Update.
In the MBA letter to the Fed and Treasury Department, the association said widespread borrower forbearance on a national scale would lead to a severe liquidity shortage for the housing finance system.
“This liquidity shortage will most acutely affect mortgage servicers, who are contractually bound to continue to advance monthly payments to investors, insurers, and taxing authorities, regardless of whether the borrower actually made those payments,” MBA stated.
Ginnie Mae already took steps to help with the liquidity crunch, announcing it would create a credit facility to help servicers and issuers who had trouble making principal and interest payments to investors under Ginnie Mae standards.
However, no similar announcement has come from the Fed which might handle loans backed by Fannie Mae and Freddie Mac or private label investors.
“The servicer needs enough liquidity to remain in operation and continue to fulfill its critical functions, including remitting property tax and hazard insurance premiums, until the reimbursement occurs,” MBA wrote. “In normal and even stressed environments, such as a localized natural disaster, servicers can withstand this liquidity pressure. Widespread, national borrower forbearance at the levels being proposed in response to the COVID-19 outbreak, however, extends well beyond any servicer advance obligations previously envisioned, and is beyond the capacity of the private sector alone to support.”
MBA recommended that the Fed immediately establish a program through its authority under Section 13(3) of the Federal Reserve Act to provide liquidity for the residential mortgage servicing sector, supported by credit protection from Treasury’s Exchange Stabilization Fund.
“It is critical that such a program be announced and developed in advance of any obligations that mortgage servicers must meet due to borrower forbearance,” MBA wrote. “By ensuring that the necessary liquidity is available before it is truly needed, the Federal Reserve and Treasury can provide stability to this vitally important segment of the market and remove barriers to the successful implementation of forbearance options on a national scale.
“Again, we urge the Federal Reserve and Treasury to coordinate in developing a liquidity facility to support mortgage servicing. Failure to do so could jeopardize the infrastructure of housing finance, causing irreparable harm to consumers and market participants of all types.”