April 13, 2020
On April 7, FHFA Director Calabria rejected calls for a FHFA/GSE servicing liquidity facility and made relatively dismissive comments regarding potential stress in the mortgage servicing due to the forbearance framework in the CARES Act. What should Orion’s brokers watch in the near term that may impact them or their clients?
First, the Federal Reserve may step in if the FHFA (the overseer of Freddie Mac and Fannie Mae) does not. There exists the potential for a 13(3) facility from the Federal Reserve and Treasury Department. Also, the Ginnie Mae PTAP facility is a positive step for market stability.
A bipartisan group of Senators sent a letter to Secretary Mnuchin stating that “urgent action is required to avoid a critical strain on liquidity for certain home mortgage servicers.” The seven Senators warned: “Failure to quickly address the liquidity challenges facing servicers could have much broader, systemic implications for our economy.” And MBA President/CEO Bob Broeksmit warned, “The FHFA Director’s recent statements send a troubling message to borrowers, lenders, and the mortgage market. Servicers are required to offer borrowers widespread forbearance under a plan devised and approved first by FHFA and then codified by the CARES Act.” Since Fannie Mae and Freddie Mac will eventually reimburse mortgage servicers for the payments they must advance during forbearance, Director Calabria should advocate for the creation of a liquidity facility at the Fed to ensure the stability of the housing finance market.
Orion’s brokers know that this is not 2008. This is not a bailout for an industry that has acted irresponsibly. The administration, including FHFA, has advocated for this forbearance and should be willing to pay for its own programs rather than expecting private American companies to pick up the tab, with potentially bad outcomes for homeowners and taxpayers.
Ginnie Mae’s April 10 PTAP/C19 announcement is a positive step for lenders and brokers trying to figure out the forbearance uncertainty. What percent of borrowers will take advantage of the program?
It is generally understood that a legislative mandate for a servicing liquidity facility is possible given the current state of Washington politics. Orion’s brokers should know that the policy choice regarding a 13(3) servicing liquidity facility will be driven by the number of borrowers taking advantage of forbearance, and the potential for market disruptions.