Groundswell of Support Builds for Federal Liquidity Facility
Last week, the Mortgage Bankers Association made headlines—not just in MBA NewsLink but across the news spectrum—when it reacted strongly to Federal Housing Finance Agency Director Mark Calabria’s indifference to the need for a federally based liquidity facility for mortgage servicers resulting from economic fallout from the coronavirus pandemic.
Pete Mills, MBA Senior Vice President of Residential Policy and Member Engagement, said the groundswell is sending a strong message to regulators.
“There seems to be pretty broad diverse and bipartisan support for starting up something now,” Mills said. “I think the right people are starting to listen. Federal Reserve Chairman Jerome Powell referenced it in remarks last Thursday. There is ample funding to support it. I think we are marshalling a consensus.”
In response to comments Calabria made last week to HousingWire ((https://www.housingwire.com/articles/calabria-no-servicer-liquidity-facility-coming-but-gses-may-pull-servicing-from-struggling-companies/), MBA President and CEO Robert Broeksmit, CMB, issued a statement saying Calabria’s comments “send a troubling message to borrowers, lenders and the mortgage market.”
“Servicers are required to offer borrowers widespread forbearance under a plan devised and approved first by FHFA and then codified by the CARES Act,” Broeksmit said (https://www.mba.org/2020-press-releases/april/mba-statement-in-response-to-comments-by-fhfa-director-calabria). “Fannie Mae and Freddie Mac are contractually obligated for the payments to investors. Since Fannie Mae and Freddie Mac will eventually reimburse mortgage servicers for the payments they must advance during forbearance, Director Calabria should advocate for the creation of a liquidity facility at the Fed to ensure the stability of the housing finance market.”
Bu MBA isn’t standing alone on this issue. Last week, (https://newslink.mba.org/mba-newslinks/2020/april/mba-trade-groups-release-statement-urging-regulators-to-establish-liquidity-facility/), MBA and a broad coalition of organizations representing financial industry and affordable housing advocates released a statement calling on government regulators to provide a source of liquidity to those mortgage servicers that may need additional capacity to support homeowners and renters impacted by COVID-19. They emphasized because of the sheer scale of forbearance required during the coronavirus pandemic, many servicers will require a government-backed liquidity facility to assist borrowers and remain financially viable. The statement also warns that delays could lead to “greater market uncertainty and volatility.”
Those comments were echoed by 21 House Republicans, who, in an Apr. 10 letter to Treasury Secretary Steven Mnuchin, noted “the mortgage industry cannot shoulder the entire onus of government actions to protect American homeowners impacted by COVID-19 when it does not have access to needed liquidity to execute on those government actions.”
“As we all learned from the past crisis, the best way to protect the American taxpayer would be to create a facility now – in hope that it never needs to be used – than to wait for a market disruption when it may be too late,” the House letter said. “The mere creation of such a facility may provide a level of support to the market without its even being utilized.”
A bipartisan group of senators weighed in as well. In an Apr. 8 letter to Mnuchin (https://t.co/ilXZGtRdTP), the senators said failure to quickly address liquidity challenges facing servicers could have much broader, systemic implications for the U.S. economy. “We are calling for immediate action to avoid an impending crisis in the mortgage servicing sector, that could further threaten the mortgage market,” the letter said.
“The institutions that normally provide servicers with their liquidity will be unwilling to provide this unprecedented level of support, at least at a rate that many servicers could possibly afford,” the Senate letter added. “This will leave many servicers with no way to cover the growing obligations. Since this liquidity need was created by the CARES Act’s entirely appropriate, but extraordinary, requirement to provide widespread forbearance, measures should be taken to ensure that the businesses required to execute on that commitment can survive to see it through.”
The issue has also gotten the attention of diverse industry trade groups, such as the Independent Community Bankers of America and the American Action Forum. In an Apr. 10 letter to regulators, ICBA strongly urged establishment of a liquidity facility to support all mortgage servicers. “Putting mortgage servicers at risk of failure will cause disruption and further harm to our economy, likely to result in serious repercussions long after the COVID crisis is over and a higher concentration of mortgage servicing in the handful of larger, systemically risky, too-big-to-fail participants,” ICBA said.
Similarly, AAF Executive Director Thomas Wade (https://www.americanactionforum.org/insight/the-cares-act-and-mortgage-servicers/?utm_source=American+Action+Forum+Emails&utm_campaign=66cd57d7f2-EMAIL_CAMPAIGN_2019_05_01_08_53_COPY_01&utm_medium=email&utm_term=0_64783a8335-66cd57d7f2-267121281) said without a liquidity facility, the resulting strain on the housing market “could have immediate impacts on mortgage availability and price, and the ramifications for the broader economy could equal or exceed the stresses of the 2007-2008 financial crisis.”
Mills noted MBA data support the industry’s concerns. “On March 18, Calabria announced availability of forbearance,” he said. “In the three weeks since, we are already seeing overall forbearance rates of 4 percent. Ginnie Mae is close to 6% and the GSEs are at 2.5% in forbearance. That’s just in three weeks. “
Mills said those curves should continue to increase as unemployment numbers continue to spike. “We think the take-up rate on forbearance will be higher than the somewhat lower levels that policymakers are hoping for, and for a duration that is longer than all of us hope for,” he said.
Mills said the stance of MBA and the industry is clear: “We should be doing more now in case we need it later,” he said. “If we wait, it could be too late—that could add more stress and volatility, which is not good for the consumer, either. We can avoid that by creating the liquidity facility now.”