WASHINGTON (WAVY) — U.S. Sen. Mark Warner is among a group of senators pushing for “urgent and immediate action” to help avoid a “housing system finance crisis” due to the coronavirus pandemic.
U.S. Sen. Mark R. Warner (D-VA) and Sens. Mike Rounds (R-SD), Thom Tillis (R-NC), Bob Menendez (D-NJ), Tim Kaine (D-VA), Jerry Moran (R-KS), and Tim Scott (R-SC) are asking the Financial Stability Oversight Council to help prevent instability in the mortgage market by giving temporary liquidity to mortgage servicers.
The servicers face an “impending cash crunch” because many Americans are impacted by the COVID-19 pandemic. Many are seeking assistance on their mortgages because of job loss and other economic damage.
“Given the magnitude of the economic stress that many Americans will face as a result of the virus, and the early numbers we are seeing from lenders across the country, it is likely that many families will be unable to make their payments as scheduled, triggering widespread participation in the program, with potentially up to 25% of borrowers seeking assistance. While this is a reminder of the program’s importance, it also presents a challenge,” wrote the lawmakers, who also pointed out that servicers could see as much as $100 billion in mortgage payments forborne. “To put this in perspective, according to Moody’s Analytics, last year servicers had total net profits of less than $10 billion. The institutions that normally provide servicers with their liquidity will be unwilling to provide this unprecedented level of support, at least at a rate that many servicers could possibly afford. This will leave many servicers with no way to cover the growing obligations. Since this liquidity need was created by the CARES Act’s entirely appropriate, but extraordinary, requirement to provide widespread forbearance, measures should be taken to ensure that the businesses required to execute on that commitment can survive to see it through.”
The Coronavirus Aid, Relief, and Economic Security (CARES) Act also gives homeowners some protections, including up to six months forbearance on their mortgage payments as long as the mortgage is insured or guaranteed by the federal government.
Up to 25 percent of homeowners are expected to use that program, which would leave mortgage servicers with the responsibility of paying investors.
The senators also said non-bank mortgage servicers make up about half of the $7 trillion market for agency mortgages. They will likely be unable to remain solvent in the near future due to limited liquidity, and the “repercussions of their collapse will severely affect homeowners and the broader mortgage market.”
“While we understand that some nonbank lenders may have adopted practices that made them particularly susceptible to constraints on their liquidity during a severe downturn, imposing a broad liquidity shock to the entire servicing sector is not the way to go about reform,” the senators said.
If mortgage servicers fail, that could mean devaluation of mortgage servicing rights, financial deterioration of healthy nonbank lenders and heightened costs and risks associated with providing mortgages in the future.
A copy of the letter is available here.