Mortgage Servicers Get Relief Amid Wave of Home Loan Forbearance

April 21, 2020 Updated: April 21, 2020

U.S. mortgage servicers have won some relief by not having to cover as many missed home loan payments, which some financially stressed households can legally put off or partly pay because of the pandemic, federal officials announced.

The Federal Housing Finance Agency (FHFA) said in a release April 21 that mortgage servicers, who process home loan payments that are owed to mortgage bondholders, will only need to cover up to four months of missed payments. Prior to the change, mortgage servicers were on the hook for half a year of missed payments, which could be extended by another six months.

So far, over 3 million borrowers have taken advantage of the mortgage forbearance program, which was part of the COVID-19 relief bill signed into law on March 27, to delay their government-backed mortgage payments.

Trump signs the CARES act
President Donald Trump signs the CARES act, a $2.2 trillion rescue package to provide economic relief amid the CCP virus outbreak, at the Oval Office of the White House on March 27, 2020. (Jim Watson/AFP via Getty Images)

The plan allows people with home loans backed by Fannie Mae or Freddie Mac to postpone up to a year’s worth of monthly mortgage payments because of a lack of income as a result of the pandemic.

“Forbearance doesn’t erase what you owe,” the Consumer Financial Protection Bureau says in a guidance document. “You’ll have to repay any missed or reduced payments in the future.”

But while the ability to delay payments could be a key buffer for mortgage holders who may have lost their jobs due to the pandemic, it has left mortgage servicers liable for advance payments to mortgage bond-owners.

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A sign advertising refinancing services is posted in a vacant lot in Stockton, California, on April 29, 2008. (Justin Sullivan/Getty Images)

For weeks, the mortgage servicing industry has been lobbying Washington to set up a federally backed liquidity facility for servicers to cope with the rapid rise in forbearance due to the economic impact of the CCP virus, commonly known as novel coronavirus.

Instead of setting up such a liquidity facility, the change helps services by capping the number of months services are compelled to make advance payments to bondholders.

“The four-month servicer advance obligation limit for loans in forbearance provides stability and clarity to the $5 trillion Enterprise-backed housing finance market,” said FHFA Director Mark Calabria. “Mortgage servicers can now plan for exactly how long they will need to advance principal and interest payments on loans for which borrowers have not made their monthly payment.”

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Director of the Federal Housing Finance Agency Mark Calabria testifies on Capitol Hill in Washington on Sept. 10, 2019. (Jim Watson/AFP/Getty Images)

The change was hailed by the Mortgage Bankers Association (MBA), which maintains its call for a liquidity facility.

“This is an important step in reducing the maximum liquidity demands for servicers who are providing mortgage payment forbearance for borrowers who have a pandemic-related hardship,” Bob Broeksmit, CEO of the MBA, said in a statement.

“While this news reduces servicers’ worst-case cash flow demands considerably, we continue to stress the need for Treasury and the Federal Reserve to create a liquidity facility for those servicers who need it in order to continue to make payments to investors, municipalities, and insurers on behalf of borrowers who have been granted forbearance required under the CARES Act.”

Another form of relief the Coronavirus Aid, Relief, and Economic Security (CARES) Act provides to homeowners struggling to pay down their mortgages amid the pandemic is a moratorium on foreclosures. That prohibits lenders or loan servicers from foreclosing on people for a period of 60 days after March 18.

There are some $7 trillion in federally backed mortgages in the United States.

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