A top U.S. regulator is exploring whether to throw a lifeline to mortgage servicers stressed by the coronavirus pandemic by tapping a program meant to address natural disasters.
To prepare for an expected wave of missed payments as borrowers deal with the economic fallout from the virus, officials at Ginnie Mae are considering using relief programs most often activated in the wake of hurricanes, floods and other calamities, according to people familiar with the matter.
The plan under discussion would help mortgage servicers, companies that perform the critical task of taking payments from borrowers and distributing them to bondholders and others. If big servicers were to collapse as payments dry up, federal regulators would have to find other companies to take over their business.
“Ginnie Mae has the authority to make changes to the requirements of our program, and we are using those powers to tailor the existing disaster pass-through assistance programs to more suitably scale to the needs of this national emergency,” Principal Executive Vice President Seth Appleton said in a blog post. Ginnie Mae expects to implement the changes within the next two weeks, he said.
President Donald Trump has signed legislation that will let borrowers experiencing virus-related financial difficulties delay mortgage payments for months. When such forbearances are granted, servicers are typically expected to advance the cash themselves.
Even if borrowers never resume loan payments, servicers eventually get reimbursed by federal programs that backstop the mortgage market. In the meantime, however, firms can face a severe liquidity shortage as they continue to advance payments. Since economists expect that the virus could temporarily push the unemployment rate as high as 25%, servicers are expecting a surge of missed payments.
Ginnie Mae, which is part of the U.S. Department of Housing and Urban Development, backs bonds containing mortgages insured by the Federal Housing Administration, U.S. Department of Veterans Affairs and other agencies. The agency's $2.137 trillion in bonds form one of the world's largest mortgage-backed securities markets.
The disaster-relief program — historically used for localized disasters rather than national epidemics — lets Ginnie Mae advance payments to mortgage bondholders at the request of a servicer.
The need is especially acute among nonbank servicers, which don't have deposits or other readily available sources of cash. After the 2008 financial crisis, banks pulled back from the programs that feed into Ginnie Mae, and nonbank firms now dominate that market.
Mortgage-industry lobbyists unsuccessfully tried to get Congress to include some sort of liquidity facility for servicers in the stimulus bill. Still, many servicers expect the Treasury Department and the Federal Reserve to create a lifeline for servicers out of other money in the $2 trillion package.
Any move that Ginnie makes would likely supplement rather than replace any lending facility created by Treasury and the Fed, said the people, who requested anonymity to discuss the matter.
