Add House Republicans to the growing list calling for the federal government to address mortgage liquidity concerns as forbearances continue to mount.
Twenty-one GOP representatives, led by Rep. Lee Zeldin, R-New York, co-signed a joint letter to Treasury Secretary Steve Mnuchin on Friday pushing for the creation of a liquidity facility to help servicers deal with the rising tide of forbearances during the coronavirus crisis. The letter is the latest call to action directed at the federal government concerning the liquidity issue, joining similar pushes from housing industry trade organizations, advocacy groups, and senators.
“Congress has correctly decided that a nationwide, broad scale forbearance program is needed, but we need to make sure this is done responsibly to avoid unintended consequences and market uncertainty,” said the letter. “The mortgage industry cannot shoulder the entire onus of government actions to protect American homeowners impacted by COVID-19 when it does not have access to needed liquidity to execute on those government actions.
The issue stems from provisions included in the CARES (Coronavirus Aid, Relief, and. Economic Security) Act allowing for homeowners with federally-backed housing loans to be given mortgage relief. Specifically, the CARES Act offers homeowners suffering financial hardship because of COVID-19 up to six months of forbearance on their mortgage payments, with a possible extension of that forbearance for another six months.
Industry estimates of the total financial impact of such forbearances have been massive. As such, the representatives’ letter calls for funds appropriated in the CARES Act to be used for funding the legislation’s forbearance provisions.
The letter makes special mention of the particular peril the pandemic has imposed upon nonbank lenders and smaller servicers, whose thinner reserves of funds are especially threatened by widespread, potentially drawn-out forbearances.
“While elevated take-up rates on forbearance may be somewhat more manageable for certain servicers affiliated with banks, which have more diversified lines of business, it is likely that these advancing requirements will be unsustainable for many nonbank mortgage servicers,” said the letter. “Even those who may already have access to liquidity will likely have to divert resources from other businesses that provide capital to the American households and businesses in order to cover strains in their servicing businesses. Servicers will eventually be reimbursed for these servicing advances, so this issue represents a liquidity concern for otherwise solvent entities in the chain of payments as well.”
Last week, comments made by Mark Calabria, head of the Federal Housing Finance Agency (FHFA), implied that any market share lost through the dissolution of such smaller entities could be absorbed by “larger players” in the lending industry. Many in the mortgage business perceived those remarks as dismissive of nonbank and smaller lenders’ role in the housing ecosystem, and several came forward with statements criticizing or diverging with Calabria’s comments.
“All [independent mortgage bank] servicers should receive access to advances or a liquidity facility — for the simple reason that Congress is asking them to act as bankers to fund consumers’ missed mortgage payments under the new forbearance option, at a time when missed payments are also growing because of spiking unemployment,” said the Community Home Lenders Association, via a statement from executive director Scott Olson.
“This liquidity should be equitably available to all servicers, particularly smaller IMBs, since their continued participation in mortgage markets has proven to be a boon to consumers, through more competition and more personalized servicing than the big banks have historically provided.”
It’s a point on which the representatives penning this latest letter apparently agree.
“As we all learned from the past crisis, the best way to protect the American taxpayer would be to create a facility now – in hope that it never needs to be used – than to wait for a market disruption when it may be too late,” the letter said. “The mere creation of such a facility may provide a level of support to the market without its even being utilized.”
The letter was signed by Zeldin; Steve Stivers; Steve Stivers, R-Ohio; Ann Wagner, R-Missouri; French Hill, R-Arkansas; Bill Posey, R-Florida; Blaine Luetkemeyer, R-Missouri; Bill Huizenga, R-Michigan; Andy Barr, R-Kentucky; Scott Tipton, R-Colorado; Roger Williams, R-Texas; Tom Emmer, R-Minnesota; Peter King, R-New York; Barry Loudermilk, R-Georgia; Ted Budd, R-North Carolina; Anthony Gonzalez, R-Ohio; John Rose, R-Tennessee; Lance Gooden, R-Texas; Denver Riggleman, R-Virginia; William Timmons, R-South Carolina; and Van Taylor, R-Texas. All are members of the House’s Financial Services Committee.
For his part, Mnuchin acknowledged liquidity concerns during a Monday White House briefing. He said that a task force has specifically studied the servicer liquidity conundrum and that the Treasury Department has discussed the issue with the FHFA.
“We have all the appropriate people on it,” said Mnuchin.
“We’re very aware of the issue.”
