Nonbank mortgage group calls for guidance on coronavirus forbearance

Mortgage servicers need direction from federal agencies on how to implement the forbearance plans called for in the CARES Act, according to the Community Home Lenders Association.

"For the benefit of both borrowers and servicers, we believe it is critical that guidance be provided as soon as possible, so that borrowers can properly assess whether to pursue this option and servicers have clear direction," Scott Olson, executive director of the group that represents small-to-medium sized independent mortgage bankers, said in a press release.

The letter was sent to Housing and Urban Development Secretary Ben Carson; Federal Housing Finance Agency Director Mark Calabria; Bruce Lammers, the administrator of the U.S. Department of Agriculture Rural Housing Service; and Robert Wilkie, the secretary of the Veterans Administration.

Among the points CHLA is asking the regulators for clarity on is how much scrutiny mortgage servicers are required to give to borrower requests for forbearance before approving them.

Because the CARES Act is silent on this point, "It is not clear whether the servicer is required to simply accept a statement by a borrower of such financial hardship without any scrutiny — or whether they are responsible for some standard of scrutiny, such as documentation that a borrower has reduced income or some other hardship factor," the letter said.

Borrowers who are not experiencing an income reduction should be discouraged from seeking a forbearance because it would divert servicer attention from those truly in need. That distraction only exacerbates the need for guidance from regulators on how repayment plans should be structured after the forbearance period ends, according to the CHLA.

"We see no purpose in unnecessarily encouraging borrowers with little or no income reductions — borrowers that can make mortgage payments — to utilize forbearance, particularly since it would divert servicer resources best focused on assisting borrowers in need.

"Therefore, we recommend that borrowers demonstrating hardship be processed through a partial claims loss mitigation to minimize household financial stress, while repayment plans for borrowers capable of making mortgage payments be scheduled over 12 months," the letter said.

Furthermore, existing loss mitigation requirements for each of the programs involved should be specified by the respective agencies; for the FHFA, that would be the standards established by Fannie Mae and Freddie Mac, while each of the government guarantors have their own rules.

But the CHLA is also looking to make broadly available "a partial claims option similar to what FHA offers is available, especially to ensure that low-to-moderate income households hit hardest by this crisis are protected."

The fourth point involves the use of funding provided by Ginnie Mae or, potentially, other sources such as the Federal Reserve, so servicers can make the contractually required advances to owners of mortgage-backed securities.

CHLA said there is "complexity" associated for how those advances might be used or subsequently recovered by the servicer.

"We encourage maximal consideration of these complexities and maximum coordination with programs and procedures used to securitize underlying loans subject to the forbearance requirement," the letter said.