Senators Up Pressure on Administration to Provide Liquidity Facility

A bipartisan group of senators joined the Mortgage Bankers Association in raising concerns with the Trump Administration to provide urgent action to avoid a critical strain on liquidity for certain home mortgage servicers.

In an Apr. 8 letter to Treasury Secretary Steven Mnuchin (, 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 letter echoes concerns raised earlier this week by MBA, following an Apr. 7 article in HousingWire in which Federal Housing Finance Agency Director Mark Calabria appeared dismissive of the immediate need for a federally backed liquidity facility to assist mortgage servicers with forbearance efforts resulting from the coronavirus pandemic.

In response (, 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. “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.” 

The Senate letter noted lenders could see as much as $100 billion in mortgage payments go through forbearance under the CARES Act, which presents an “existential threat to these companies, and thus to the broader mortgage market.”

“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 letter said. “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.”

Additionally, the situation could be “especially unsustainable” for non-bank mortgage servicers, which are typically monolines and currently account for fully half the $7 trillion market for agency mortgages,” the letter said. “At some point in the not-too-distant-future, the strain on these nonbank mortgage servicers will become too much for many institutions to bear, and we fear that the repercussions of their failure to homeowners and the market will be severe,” it said.

The reasons for acting are systemic, the letter said. “First, as weaker nonbank mortgage servicers begin to struggle they may be forced to unload their mortgage servicing rights to stay afloat. This will drive down the value of MSRs generally, reducing the value of the assets of all other nonbank lenders. This will deteriorate the financial position of healthier nonbank lenders so that they face some of the same risks that forced the less healthy nonbank lenders into a sell-off. At best, we are disabling a large swath of previously healthy lenders at the worst possible time. At worst, we may be risking a downward spiral.”

Moreover, when these nonbank lenders fail, regulators will be forced to find a home for their servicing at a time when there will be very few parties interested in absorbing these obligations. “MSR values will be declining, the costs and risks of servicing will be skyrocketing, nonbank lenders will be weakened, and we fear that banks will still be reticent to get into servicing for many of the same reasons they have stayed away in recent years,” the letter said.

The letter was signed by Sens. Mark Warner, D-Va.; Michael Rounds, R-S.D.; Robert Menendez, D-N.J.; Thom Tillis, R-N.C.; Tim Kaine, D-Va.; Jerry Moran, R-Kan.; and Tim Scott, R-S.C.