MBA, Trade Groups Outline Challenges Facing Borrowers Amid COVID-19

The Mortgage Bankers Association and a half-dozen industry trade groups last week sent a letter to the White House and other government agencies discussing concerns and challenges facing homeowners in paying their mortgage due to the COVID-19 crisis.

The letter highlights the importance of borrower support and origination-oriented policy accommodations, in addition to emphasizing the need for liquidity support for non-depository, independent mortgage companies.

“We implore the Administration to ensure engagement and harmonization among government agencies to create an environment that will allow lenders and servicers to meet the needs of consumers in this unprecedented pandemic,” the letter said. “We stand at the ready to help in any way that you deem appropriate.”

The letter notes the mortgage market issues for consumers in the wake of the pandemic has two elements – challenges posed to existing homeowners and challenges posed to home buyers and those in the process of refinancing their mortgages or completing home purchases.

For existing homeowners, “It is our objective to quickly and efficiently respond to the growing number of affected households with a uniform program that is simple and streamlined,” the letter said. “The mortgage industry is committed to ensuring that households in need receive help immediately through payment forbearance that could extend from ninety days to twelve months. This assistance would be followed by an appropriate loan modification, with programs that allow consumers to simply resume their previous mortgage payments, without additional costs or penalties, as the first and best option for most, but complemented by programs that can provide more substantial payment relief through changes to the rate and term of the mortgages, as necessary, also without additional costs or penalties.”

The letter emphasizes the need for a close partnership between industry and the federal government on the messaging surrounding this borrower assistance. For example, a “.gov” website reinforcing the standards and terms of the borrower assistance program would aid consistency in messaging, reinforcing that this assistance is available to those in actual economic distress due to the pandemic and that others should continue to make their mortgage payments, a message that will target critical resources to those in need and bolster consumer confidence in the approach.

For new mortgage applicants, the second element of the industry response to the pandemic is targeted at the operational difficulties the industry now faces as a result of the broad-based shutdown of both private and public services, including county recorders offices and other critical government functions.

“We intend to continue our engagement with appropriate regulators,” the letter said. “Our request of our regulators is

to work with us to construct appropriate relief to ensure that mortgage production does not grind to a halt and that lenders are not penalized for demonstrating prudent judgment adapting to these unusual and temporary conditions. Rules are there to protect consumers but cannot be allowed to stifle or halt a consumers’ ability to close mortgage loan applications because of these extraordinary circumstances reflecting a national health emergency.”

The second part of the letter addresses liquidity issues for non-bank mortgage servicers. “Our associations recognize that the stability of our housing finance system depends upon mortgage servicers providing the extraordinary financial support to consumers demanded by these conditions,” the letter said. “In this case, the need is not universal, yet the systemic risks of failing to address the need where it exists could bring great harm to borrowers and to housing markets and housing finance.”

With millions of Americans experiencing a material reduction or elimination of income as the country combats COVID-19, many households will be unable to make their mortgage payments. This will trigger an unprecedented need for borrower forbearance, the letter said, “which will strain and possibly overwhelm some servicers’ liquidity reserves, all of which were calculated and set aside for more ordinary times.”

The financial stress to servicers will vary but will be most pronounced for non-bank mortgage servicers that are engaged solely in the mortgage business. “Therefore, for the welfare of those borrowers and for the good of the housing finance system, the market today needs a backstop liquidity source for these independent mortgage servicers,” the letter said, specifically, Ginnie Mae’s Pass-Through Assistance Authority and the Federal Reserve’s 13(3) authority.

“Beyond these existing policy options, any additional legislative or regulatory measures must be designed to protect the safety and soundness of the financial system, with government agencies acting in concert to respond to this national emergency,” the letter said. “The critical point is the necessity of a temporary government backstop liquidity source(s) to fund an unprecedented need for servicer advances.”

Joining MBA in the letter: the American Bankers Association; the Consumer Data Industry Association; the Housing Policy Council; the Structured Finance Association; The National Mortgage Servicing Association; and US Mortgage Insurers.

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