What’s being done to prevent forbearance from crushing the mortgage industry?


By Jann Swanson | Mortgage Daily News

Among responses to the job losses and reduced income already emerging from the COVID-19 pandemic has been a moratorium on foreclosures and a requirement, coming from many quarters, that servicers offer mortgage borrowers an extended period of forbearance from their mortgage payments. This has raised an issue regarding the liquidity of those servicers.

Late last week Treasury Secretary Steven T. Mnuchin announced formation of a task force to focus on mortgage liquidity problems and has given them until March 30 to present their recommendation.

The Mortgage Bankers Association (MBA) outlined the servicers’ potential forbearance problem in a March 20 letter to Mnuchin and Federal Reserve Chairman Jerome H. Powell. Under contracts with investors who purchase mortgage-backed securities (MBS), servicers are obligated to forward principal and interest payments on those securities to the investors even if borrowers fail to make their payments. Services are also obligated to pay property taxes and insurance premiums. The guarantors of those loans, FHA,  the VA, and the GSEs Fannie Mae and Freddie Mac, eventually repay the advances, but the delay can cause liquidity problems.


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