A federal housing regulator announced a plan on Tuesday to provide financial relief to dozens of mortgage servicing firms caught between investors looking to get paid and homeowners who don’t have money because of the coronavirus crisis.
The Federal Housing Finance Agency said the firms had to make just four months of cash payouts to bond investors in mortgages that homeowners have stopped paying.
After the four-month period, Fannie Mae and Freddie Mac — the government mortgage firms regulated by the agency — will assume that obligation, for up to eight more months, if necessary.
The agency and the Treasury Department have faced pressure from mortgage industry lobbyists and legislators on Capitol Hill to come up with a way to make sure mortgage servicing firms do not go bankrupt while providing financial relief to millions of unemployed homeowners. Servicers collect monthly payments from homeowners and use that money to pay property taxes and insurance for the borrower and then send principal and interest payments to the investors in securities that are backed by those mortgages.
Michael Bright, chief executive of the Structured Finance Association, a trade group that supports investors in securitized mortgages and other loans, called the agency’s plan “a very welcome step.”
The industry has feared it could be on the hook for a full year of payments to bond investors, because the federal government’s $2 trillion economic relief package permits homeowners who lose their jobs during the Covid-19 crisis to avoid making mortgage payments for 12 months.
That could have strained nonbank mortgage servicers like Quicken Loans, Mr. Cooper, Freedom Mortgage and Caliber Home Loans. Most nonbank servicers operate with relatively thin capital reserves, which made industry officials worry that they would not be able to provide forbearance to homeowners who need it and still come up with the cash to pay the bond investors.
Mr. Bright warned that some mortgage firms might need more help during the next four months if homeowner requests for forbearance rose sharply.
At the moment, about 5.5 percent of all mortgage holders have asked to delay their monthly payments. Some in the industry have said the number could rise to as high as 20 percent of all borrowers.
Mark Calabria, the director of the Federal Housing Finance Agency, has called such predictions “apocalyptic” and has openly questioned how much financial relief should go to mortgage servicers, in particular nonbank firms that have operated with lesser regulatory oversight. But he said Tuesday that the new plan would offer servicers the help they needed.
“Mortgage servicers can now plan for exactly how long they will need to advance principal and interest payments on loans for which borrowers have not made their monthly payment,” he said in a statement.
The new plan broadens an arrangement already in place for mortgages guaranteed against default by Freddie Mac. But it could create a new round of problems for Fannie and Freddie if tens of millions of people don’t pay their mortgages for many months.
Mr. Calabria and the agency are considering additional steps to provide mortgage firms with more flexibility, including allowing them to sell Fannie and Freddie some loans that borrowers have temporarily stopped paying, according to a person briefed on the matter but not authorized to speak publicly.
The signs of pain are already bubbling to the surface in other ways, with some nonbank mortgage lenders laying off employees because of lack of demand for new home loans. On Saturday, Impac Mortgage of Irvine, Calif., notified the state that it was temporarily laying off 333 employees.