Mortgage industry lays out its case for widespread coronavirus emergency relief
The mortgage industry’s biggest trade and lobbying groups are banding together to push the federal government for widespread relief for all borrowers affected by the coronavirus outbreak in the U.S.
In a letter sent this week to the White House and top federal agencies, the housing groups laid out their plan for helping mortgage borrowers and the mortgage business itself deal with the impact of the coronavirus.
The letter is signed by the Mortgage Bankers Association; the American Bankers Association; the Consumer Data Industry Association, which includes Experian, Transunion, and Equifax; the Structured Finance Association, the National Mortgage Servicing Association, and US Mortgage Insurers.
The groups, which represent banks, mortgage companies, mortgage servicers, mortgage bond investors and more, suggest that the government provide mortgage payment forbearance and longer-term loan modifications to borrowers affected by COVID-19.
The groups’ plan calls for mortgage servicers to be able to provide affected borrowers with a 90-day break from their mortgage payments. But the groups note that forbearance period could very well be extended to a full year.
The groups also call for payment forbearance protections including no negative credit reporting, no collection calls or letters, and no late fees. Additionally, the groups ask that payment forbearance be made available to all affected borrowers, including those who were delinquent on the payments prior to the March 13 declaration of a national emergency.
According to the groups, the program would mean a deferral of mortgage payments, not forgiveness. In most cases, the groups say, missed payments would be made at the end of the life of the loan and there would be no interest accrued on the deferred amount.
Additionally, the groups call for the elimination or streamlining of documentation requirements, “in recognition of the limited ability to compile and/or contact third-parties for access to documents in this widespread event.”
The groups also call for limited direct customer contact, including the use of online web-based portals, emails, or other electronic means when applying for mortgage relief, rather than by telephone to “address staffing constraints caused by the broad-based shutdown.”
The letter was sent this week to leaders of the Department of the Treasury, Federal Reserve, Consumer Financial Protection Bureau, Federal Housing Finance Agency, Department of Housing and Urban Development, and the White House’s National Economic Council.
“It is our objective to quickly and efficiently respond to the growing number of affected households with a uniform program that is simple and streamlined,” the groups said in the letter.
“The mortgage industry is committed to ensuring that households in need receive help immediately through payment forbearance that could extend from ninety days to twelve months,” the groups continued. “This assistance would be followed by an appropriate loan modification, with programs that allow consumers to simply resume their previous mortgage payments, without additional costs or penalties, as the first and best option for most, but complemented by programs that can provide more substantial payment relief through changes to the rate and term of the mortgages, as necessary, also without additional costs or penalties.”
One issue with widespread mortgage forbearance is what would happen to mortgage servicers in that environment.
As the groups note, when a borrower fails to make their monthly mortgage payment, the mortgage servicer must still pay the principal and interest to investors, as well as pay the real estate taxes, homeowners’ insurance, and mortgage insurance on their behalf.
Servicers typically retain some reserves to cover such shortages, but they don’t have enough money to cover the mortgage payments if a widespread forbearance program is put in place.
“Without some access to liquidity so that they can cover that cost, non-depository mortgage servicers will not have enough liquidity to advance these payments at the extraordinary rate that we are going to need, undermining the relief efforts and requiring yet more government intervention,” the groups wrote, adding an example of just how much money it would take to cover the mortgage payments in question:
To give one a sense of scale, if 25% of the nation receives forbearance for only 3 months, servicers will have to cover payments of roughly $36 billion. If they received it for 9 months, then the cost would exceed $100 billion.
To that end, the groups say that it’s “critical” for the government to “create a vehicle to provide lenders and servicers with access to the liquidity” they would need to fund such a program.
Also signing the letter was the Housing Policy Council, a trade group whose membership includes Citigroup, Black Knight, Caliber Home Loans, First American, JPMorgan Chase, Mr. Cooper, Quicken Loans, Wells Fargo, and many more of the biggest companies in mortgages.
The Housing Policy Council is led by Ed DeMarco, the former acting director of the FHFA. In a statement, DeMarco said that the plan laid out by the groups is needed and needed quickly to help affected borrowers as soon as possible.
“We know many people have had their income disrupted and as leaders in the industry, we all hope this disruption is temporary as we fight off the coronavirus,” DeMarco said. “We want to give borrowers who need help, regardless of what type of loan, access to a simple, temporary payment deferment. I am pleased that so many people in the housing finance industry are working together to make sure needed assistance is in place for Americans experiencing economic challenges due to this national health emergency. We are all in this together.”
To read the groups’ letter in full, which lays out their plan in more detail, click here.
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