WASHINGTON—Mortgage companies are bracing for a severe cash crunch when Americans who lose jobs and income because of the coronavirus pandemic stop making payments on their home loans.
The companies, such as Quicken Loans Inc. and
Mr. Cooper Group Inc.,
expect a wave of missed payments from borrowers as early as next month that will force them to come up with tens of billions of dollars on short notice.
“It’s going to be a liquidity tsunami,” said Jay Bray, chief executive of Mr. Cooper, one of the biggest such companies, which process mortgage payments on behalf of investors.
The mortgage firms are on the hook to continue paying principal and interest on the mortgages they service even if homeowners are in arrears. They are lobbying Congress and the Trump administration to establish a lending facility to help finance the billions of dollars of payments they will be obligated to make.
Such a facility would ensure that millions of Americans could obtain “forbearance” agreements allowing them to miss some mortgage payments and make them up at a later date.
“You can’t have that forbearance without a means to pay for it,” said Mike Calhoun, president of the Center for Responsible Lending.
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The companies service loans that are guaranteed by the big U.S. government-backed mortgage giants, Fannie Mae and Freddie Mac, as well as Ginnie Mae.
Fannie Mae and Freddie Mac announced last week that they would suspend for at least 60 days foreclosures and evictions of homeowners who fall behind on their mortgage payments. They have also set up plans for borrowers harmed by the virus to work out a repayment plan over the course of up to a year.
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The Mortgage Bankers Association, an industry group that is lobbying for the lending facility, estimates that if one-quarter of borrowers avail themselves of forbearance for six months or longer, servicers could be on the hook for payments of at least $75 billion and as much as $100 billion or more.
The facility has the backing of at least some of the top lawmakers who are helping to craft a massive federal stimulus package in response to the pandemic, including California Democrat Maxine Waters, who heads the House Financial Services Committee. Still, it was unclear if the measure would gain traction in the Senate.
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Mortgage payment forbearance on a national scale “is beyond the capacity of the private sector alone to support,” Mortgage Bankers Association Chief Executive Robert Broeksmit wrote in a letter to Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell.
Nonbank service companies such as Quicken Loans now handle the bulk of U.S. home loans. Banks, which also make and service mortgages, have thicker capital and liquidity buffers as well as access to emergency funding from the Fed.
Since the 2008 financial crisis, banks have pulled away from mass-market mortgages to focus on wealthier consumers. Nonbank lenders and servicers have filled the void, providing a route to homeownership for many first-time buyers and moderate-income families.
While nobody could foresee the pandemic that triggered the current crisis, Fed economists have long warned about the nonbank service industry’s ability to withstand a liquidity shock.
“We’ve seen this coming since at least 2016 as the agency market shifted to entities dependent on short-term liquidity, lacking any capital,” said Karen Petrou, head of Federal Financial Analytics, a regulatory advisory firm.
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