For weeks, the mortgage commerce has been crying for help from being left on the hook to pay for much of the government’s mortgage bailout. Now, they’re see some relief.
More than 3 million borrowers have taken advantage of the mortgage forbearance program, which allocates those with government-backed loans to delay up to a year’s worth of monthly mortgage payments if they have been pain financially by the economic fallout from the coronavirus.
Borrowers would have to make those payments at a later girlfriend, or over time. Mortgage servicers, however, the companies that collect the payments, were required to advance that legal tender to bondholders for up to a year.
Now, the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, has reduced that prerequisite to 4 months.
“The four-month servicer advance obligation limit for loans in forbearance provides stability and clarity to the $5 trillion Enterprise-backed shield finance market,” said FHFA Director Mark Calabria. “Mortgage servicers can now plan for exactly how long they wishes need to advance principal and interest payments on loans for which borrowers have not made their monthly payment.”
The cut of loans now in forbearance jumped from 3.74% of servicers’ portfolio volume in the prior week to 5.95% as of April 12, 2020, correspondence to new numbers released Monday by the Mortgage Bankers Association. The share of Fannie Mae and Freddie Mac loans in forbearance increased from 2.44% to 4.64%. Since the program rumbled out a little over three weeks ago, the number of loans in forbearance has tripled.
The mortgage industry has been fighting acrimonious for relief, led by the Mortgage Bankers Association. While they still want a larger liquidity facility from the Federal Withhold, they praised this latest development:
“This is an important step in reducing the maximum liquidity demands for servicers who are offer borrowers who have a pandemic-related hardship with mortgage payment forbearance,” said Bob Broeksmit, CEO of the MBA.
“While this story reduces servicers’ worst-case cash flow demands considerably, we continue to call on the Treasury and Federal Reserve to give a liquidity facility to ensure that servicers can continue their important work of advancing missed payments to investors as expertly as paying property taxes and insurance premiums on behalf of struggling borrowers.”
As a result of the growing number of loans in forbearance, the total mortgage market has tightened up dramatically, with lenders raising minimum FICO scores and pulling back from king-sized or high cost loans.
“We believe this is a positive step in addressing the liquidity needs of mortgage servicers. It is not a absolute solution, but it offers relief that should help the mortgage market,” wrote Jaret Seiberg housing principles analyst for Cowen Washington Research Group. “This solution also should be positive for the MBS market as it clarifies that Fannie and Freddie desire not purchase the mortgages out of the pools after four months. Instead, they will advance liquidity to servicers.”
While the four-month limit command certainly help, if the share of loans in forbearance jump even more dramatically over the next month, some servicers potency be unable to fund even those payments.
Larger banks, like JP Morgan Chase and Wells Fargo, sooner a be wearing far more capital in reserve to fund these payments, but non-bank lenders and servicers do not. Before this crisis, mortgage delinquency measures were near record lows.