Why the Mortgage Industry Needs a Liquidity Facility to Address COVID-19 Forbearance Requests

United States Treasury Department

In passing the CARES Act, Congress took the unprecedented step of mandating forbearance for homeowners and renters who have suffered a loss or reduction in income as a result of the pandemic.

Congress codified forbearance actions closely aligned with those announced by the FHFA and taken by Fannie Mae and Freddie Mac in March to ensure that both homeowners and renters can maintain a roof over their heads during the crisis. This is in addition to providing support for unemployed workers and small businesses.

These are traumatic times for millions of American homeowners, many of whom are facing unexpected unemployment triggered by business closures and state-ordered shutdowns. Our industry has been called on to do our part to assure that homeowners and renters can stay in their homes during these extraordinary times, and we are up the challenge, even as we pivot our own workplaces to respond to the crisis.

While part of a necessary and prudent response to COVID-19, the need for widespread forbearance – without a source of liquidity to support it — threatens the stability of the housing finance market.

Why is this happening? Mortgage servicers must advance payments to investors even if a borrower goes into forbearance. In such a large-scale event as this, one which could never be foreseen or planned for by servicers or regulators alike, it is not unreasonable to expect policymakers to provide a source of funding to those mortgage servicers that may need additional capacity to support homeowners and renters impacted by COVID-19. Servicers want to help at-risk borrowers, but to do so, servicers need short-term financing to be able to provide this help.

That is why we are asking the Federal Reserve and Treasury to leverage a subset of the funding Treasury received from Congress in the CARES Act to provide a liquidity facility that single-family and multifamily servicers can borrow from to ensure that they can deliver much-needed economic relief to consumers through this unprecedented forbearance plan.

Key leaders in Congress have already sounded this position. Senator Mike Crapo (R-ID), Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, urged the Treasury Department and the Federal Reserve to prioritize facilities that stabilize key markets, such as the mortgage servicing market. Representative Maxine Waters (D-CA), Chairwoman of the House Committee on Financial Services, clarified that “Congress expects the Fed will act promptly to establish and implement this facility.”

The industry is prepared to supply relief, and the established forbearance framework is appropriate because it delivers help to the most people as quickly as possible. While some servicers will not need assistance, many will require temporary support to deliver forbearance at the scale and for the duration required.

As an industry, we’re committed to helping. Delaying these liquidity structures leads to the potential of greater uncertainty and volatility in the market. That would be a disservice to the millions of Americans we are all trying to help.

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