American families are feeling the physical, emotional, and financial toll of the coronavirus that is sweeping the nation. As most of us are encouraged to stay in our homes to help flatten the curve, many are unaware that the housing market is facing potential upheaval that could have negative long-term ramifications on a large percentage of homeowners. But there is a remedy. Congress and the Treasury Department must act quickly to protect the housing market by ensuring nonbank mortgage-service providers are given access to a liquidity facility — a dedicated line of credit — to cover the cost of those who delay their mortgage payments.
If you are like 50% of homeowners, you have your mortgage through a nonbank mortgage service provider. Nonbanks are financial institutions that are not considered “full-scale” banks because they do not offer both lending and depositing services. These mortgage servicers often provide many low- and middle-income families access to the mortgages to buy their first homes.
But now these families face increased uncertainty regarding their mortgages due to a provision, or lack thereof, in the recently passed Coronavirus Aid, Relief, and Economic Security (CARES) Act.
The CARES Act provided homeowners with temporary relief by allowing those with mortgages insured or guaranteed by the federal government to delay their payments for up to six months, with the possibility of an extension for an additional six months in certain circumstances.
Because of the rapidly rising unemployment rate and reduced income, particularly in working-class communities, families desperately need this reprieve. No one should have to choose between paying their mortgage and feeding their family, particularly when they have been forced out of work because of a pandemic.
Based on modeling, an expected 25% of homeowners will request a forbearance on their mortgage payments. But nonbank mortgage servicers were not provided a liquidity facility under the CARES Act to cover the cost of these delayed payments.
While our priority should remain providing American families with economic relief, not providing liquidity to mortgage servicers will inevitably negatively impact homeowners as well.
Unfortunately, it seems like the “plan” put together by the Federal Housing Finance Agency (FHFA) to address this issue is to transfer servicing away from companies that are struggling to cover these costs. This would undoubtedly put small mortgage service providers across the nation out of business, leading to job losses on top of increased uncertainty for homeowners.
(Ironically, the head of the FHFA, Mark Calabria, has personally experienced how challenging it can be to have your mortgage service provider randomly switched on you. He told Housing Wire that his own mortgage transfer resulted in his new servicer neglecting to pay his property taxes.)
During this crisis, we expect government leaders to provide certainty, not support a plan that will undoubtedly add stress onto already struggling families and businesses. Particularly when the solution to this problem is simple.
The CARES Act has $455 billion assigned for economic stabilization. These funds were allocated for this exact purpose — to help businesses address liquidity challenges and survive this unprecedented crisis. Mortgage service providers are already raising alarms regarding liquidity concerns and should have access to a liquidity facility to ensure the stability of our housing market. And Treasury Secretary Steven Mnuchin or the Federal Reserve could easily establish this facility. These businesses aren’t looking for a bailout, but simply need to cover the costs the government is requiring them to shoulder in order to provide homeowners economic relief.
We can all agree we must ensure that Americans are provided the assistance they need during this crisis, while limiting the long-term economic damage. But if the Treasury does not step up to help nonbank mortgage service providers, homeowners will be the ones who suffer.