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What's Being Done to Prevent Forbearance From Crushing The Mortgage Industry?
Monday, March 30, 2020
Among
responses to the job losses and reduced income already emerging from the COVID-19
pandemic has been a moratorium on foreclosures and a requirement, coming from
many quarters, that servicers offer mortgage borrowers an extended period of
forbearance from their mortgage payments. This has raised an issue regarding the
liquidity of those servicers. Late
last week Treasury Secretary Steven T. Mnuchin announced formation of a task
force to focus on mortgage liquidity problems and has given them until March 30
to present their recommendation. The
Mortgage Bankers Association (MBA) outlined the servicers' potential forbearance
problem in a March 20 letter to Mnuchin and Federal Reserve Chairman
Jerome H. Powell. Under contracts with investors who purchase mortgage-backed
securities (MBS), servicers are obligated to forward principal and interest payments
on those securities to the investors even if borrowers fail to make their
payments. Services are also obligated to pay property taxes and insurance
premiums. The guarantors of those loans, FHA,
the VA, and the GSEs Fannie Mae and Freddie Mac, eventually repay the advances,
but the delay can cause liquidity problems.
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