U.S. Holds Off on Extending Virus Aid to Mortgage Servicers

(Bloomberg) -- U.S. regulators are holding off on helping mortgage servicing firms that could be hit with a surge of missed payments from borrowers hurt by the coronavirus crisis, according to people familiar with the matter.

Mortgage servicers, companies that collect home-loan payments and distribute them to investors, want the Federal Reserve and Treasury Department to use money from the $2.2 trillion stimulus plan enacted last week to help them deal with a liquidity crisis that industry groups say could drive many firms out of business.

But members of the Financial Stability Oversight Council, a panel of regulators led by Treasury Secretary Steve Mnuchin, have discussed holding off on setting up such a program to see if other policies put in place recently effectively ease liquidity shortfalls, said the people who requested anonymity because the talks are private.

FSOC members have been discussing ways to address concerns in the mortgage market after Mnuchin set up a task force to deliver recommendations. Some officials involved in the talks want to know how many consumers seek mortgage forbearance that servicers have been encouraged to offer before moving to extend credit to the companies, the people said.

Spokespeople for the Fed and Treasury declined to comment.

Mortgage-industry lobbyists unsuccessfully tried to get Congress to require some sort of liquidity facility for servicers in the $2 trillion stimulus package that lawmakers approved last week. Since then, companies and trade groups like the Mortgage Bankers Association, have called on the Fed and Treasury to do it using authority granted to them as part of the legislation.

In passing the stimulus measure, Congress called for letting borrowers postpone mortgage payments for months if they’re facing financial difficulties resulting from the coronavirus pandemic that has largely shut down the U.S. economy. The mortgage bankers group estimates that if 25% of borrowers ask to put off payments for six months, the tab could be more than $75 billion.

When borrowers miss payments on U.S.-backed loans, servicers are expected to advance the funds themselves. While they are eventually reimbursed by federal agencies or Fannie Mae and Freddie Mac, they can face a liquidity shortfall while waiting.

The potential liquidity problem would be especially acute among nonbank servicers, which don’t have deposits or as many other sources of liquidity as banks do. To help alleviate the problem, government-sponsored Ginnie Mae said last week that it would use existing disaster-relief programs that lets it advance payments to investors at the request of servicers. Regulators want to see what effect those changes have first before taking steps to establish a liquidity facility at the Fed, the people said.

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