Mortgage forbearance opportunities, while beneficial to borrowers impacted by COVID-19, are putting an enormous strain on mortgage servicers of all sizes.
Within the last couple of weeks, Fannie Mae and Freddie Mac, along with other lending institutions, quickly stepped up to respond to the millions of people the COVID-19 pandemic has financially impacted. The White House and the Federal Housing Finance Agency even called for up to 12 months of mortgage forbearance for Americans who can’t pay their bills because of the COVID-19 pandemic.
But the challenge with mortgage forbearance is that someone has to pay the bill. According to Ginnie Mae, which currently holds 29.6% of the outstanding securities in the agency market, the cornerstone of their MBS Guaranty program “has been and will always be that the investors who support access to affordable mortgage credit for the U.S. Department of Housing and Urban Development, the U.S. Department of Agriculture, and the U.S. Department of Veterans Affairs borrowers by purchasing Ginnie Mae securities will receive payments of principal and interest on time and in full.”
It’s easier for servicers to follow this rule when there’s a handful of borrowers who need mortgage forbearance, but when the entire nation is fighting against the Coronavirus, it becomes a much larger and more concerning issue.
The mortgage industry’s biggest trade and lobbying groups crunched the numbers for the White House and top federal agencies last week to help them understand the gravity of the situation. In their letter, they stated, “To give one a sense of scale, if 25% of the nation receives forbearance for only 3 months, servicers will have to cover payments of roughly $36 billion. If they received it for 9 months, then the cost would exceed $100 billion.” For added context, the total value of the U.S. housing market came in at $30.9 trillion in the Q4 2019, according to the Federal Reserve’s Flow of Funds report.
In an effort to address the growing concerns and potential liquidity challenges faced by issuers, Ginnie Mae issued a statement on Friday that it would assert its authority to make changes to the requirements of its program. Ginnie Mae’s mortgage-backed securities program requires approved issuers who service MBS to send scheduled principal and interest (P&I) to investors and make various other payments in connection with mortgage loans.
Here’s where the problem lies for servicers when the entire nation could need mortgage forbearance. Issuers are required to make monthly payments to investors even when they don’t receive a borrower payment. In response to the challenges caused by the immediate need to advance required pass-through payments to investors, Ginnie Mae stated that it is using its power to tailor the existing disaster pass-through assistance programs to more suitably scale to the needs of this National Emergency.
Ginnie Mae laid out the following solution for issuers:
Ginnie Mae fully anticipates implementing within the next two weeks, via an All Participants Memorandum (APM), a Pass-Through Assistance Program (PTAP) through which issuers with a P&I shortfall may request that Ginnie Mae advance the difference between available funds and the scheduled payment to investors. This PTAP will be effective immediately upon publication of the APM for Single Family program issuers, with corresponding changes made to Ginnie Mae’s MBS Guide in due course. We anticipate publishing PTAP terms for HMBS (reverse mortgage) and Multifamily issuers shortly thereafter.
The guarantor’s announcement stressed that the PTAP should be a “last resort” financing option to alleviate a liquidity shortage faced by any Ginnie Mae issuers. “PTAP’s purpose will be to support the forbearance and loss mitigation programs of our insuring agency partners (FHA, VA and USDA) by minimizing potential disruption in the mortgage servicing market so that those federal mortgage insurance and guarantee programs can be administered efficiently and with maximum help to borrowers,” Ginnie Mae stated.
The Mortgage Bankers Association President and CEO Bob Broeksmit applauded the announcement from Ginnie Mae, stating, “MBA commends Ginnie Mae for its intention to create this program, which will allow many servicers to better help consumers affected by the coronavirus via mortgage payment forbearance. MBA looks forward to continuing to work with Ginnie Mae and other policymakers and stakeholders on ways to best protect consumers during this pandemic.”
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