Mortgage Servicers at Risk If Virus Persists, FHFA Chief Says
(Bloomberg) -- Nonbank mortgage servicers could find themselves at risk of collapse if economic disruption stemming from the coronavirus pandemic continues for more than two months, Federal Housing Finance Agency Director Mark Calabria said Wednesday.
Calabria’s agency and others have asked mortgage servicers to work with virus-affected borrowers and renters to ensure people aren’t forced from their homes at a time of national crisis. But unless things improve within six to eight weeks, “we’re going to be looking at a lot of stress among servicers,” he said in a Bloomberg Television interview.
“I want to be optimistic that we can get through this in a short amount of time,” said Calabria, who oversees government-sponsored enterprises including Fannie Mae and Freddie Mac. “If we get to a situation where this goes longer than two months, then there’s absolutely going to need a bigger solution.”
Servicers collect mortgage payments from property owners. The companies also send monthly payments to investors in mortgage bonds, a responsibility that continues even if borrowers stop paying off their loans. Fannie and Freddie will eventually make servicers whole for mortgages that the companies guarantee, but in the meantime, servicers can face a cash crunch.
Shares in publicly traded mortgage servicers rose Wednesday on optimism that the Treasury Department and Federal Reserve might create a funding facility for them, using some money allocated in the stimulus measure now under discussion in Congress. Calabria said mortgage services have been in contact with regulators discussing ways to help them weather the economic storm. He said regulators are also preparing for a worst-case scenario for some servicers.
“We’re preparing so that if some non-bank servicers fail, we’ll be able to transfer those servicing rights, those servicing obligations, to other lenders,” he said. “We’re talking to the players, trying to see where we might be able to shift capacity.”
The coronavirus outbreak has made it more likely that borrowers will miss their monthly payments, and the FHFA this month said it would allow forbearance for property owners who can demonstrate financial hardship. Legislation being negotiated in the Senate also grants forbearance for a wide swath of borrowers.
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