The Trump administration is considering a plan to allow homeowners whose income was cut by the coronavirus to delay mortgage payments. Still to be decided is a mechanism for borrowers to catch up.
The government also will have to determine how to advance money to mortgage servicers so that investors in mortgage-backed securities get their guaranteed payments. "Tens of billions" in short-term financing may be needed, said Michael Fratantoni, chief economist at the Mortgage Bankers Association. Other real estate-related trade groups also are involved in the discussions.
"This is so big," Fratantoni said. "We're thinking of the potential of several months of payments for a lot of homeowners."
The proposal could follow the model of previous forbearance programs after critical disasters, he said. Borrowers in areas hit by storms have been allowed to pause payments for a period of time. The White House has been in touch with mortgage lenders to discuss their views on policy responses, according to an official who requested anonymity to speak about internal matters.
The Federal Housing Finance Agency, the government regulator overseeing mortgage buyers Fannie Mae and Freddie Mac, is taking a "proactive stance," said Vince Malta, president of the National Association of Realtors. "This problem will drain household resources, weigh on the economy, and could undermine efforts to slow the spread of COVID-19 by encouraging people to take on extra work."
At the same time, a rise in defaults and foreclosures would undermine confidence in the housing market once the health threat has passed, Malta said.
The plan probably would need to be consistent for all mortgages, from Fannie Mae and Freddie Mac to the Federal Housing Administration, he said. Whether the loan terms would be stretched out or borrowers would have balloon payments, among other options, hasn’t been determined.
"Mortgage servicers are already raising huge concern about having to make advances to investors," said Dave Stevens, the MBA's former chief executive officer and former FHA commissioner. "And there are literally millions of borrowers in the FHA program, in particular, who can't miss a paycheck or two without going into default."
Relief proposals are being considered or already under way in Europe, which was hit by the virus earlier. Italy and Spain are considering plans to delay tax payments and a moratorium on mortgage payments, while banks in the U.K. are discussing debt relief proposals.
Pausing monthly mortgage payments for households that have experienced a drop in pay as a result of the coronavirus "makes perfect sense," said Lawrence Yun, chief economist at the National Association of Realtors.
"Hard-working Americans are suffering a loss of income through no fault of their own because of a national shutdown," Yun said. "It doesn't make sense that they lose their homes in the process."
