Shuttered businesses and missed paychecks are causing panic across the mortgage industry as the coronavirus cripples finances for struggling homeowners.
“It’s going to be a liquidity tsunami,” Jay Bray, chief executive of Mr. Cooper Group Inc., told the Wall Street Journal (WSJ) on Monday (March 23). Mr. Cooper is among the bigger companies that handle mortgages for investors.
Firms like Mr. Cooper Group and Quicken Loans are bracing for a succession of missed payments from hundreds of thousands of homeowners and are trying to figure out where they will come up with the billions needed to pay the investors that back those mortgages.
The firms service mortgages backed by Fannie Mae, Freddie Mac and Ginnie Mae.
The mortgage companies still have to make payments on the loans they service, regardless of coronavirus-related deferments. They are asking the federal government to create a lending facility to finance homeowners’ missed payments.
A lending facility would provide funds to support the mortgage industry so a deferment program can be put into place that would enable people to miss payments without fear of reprisal.
“You can’t have that forbearance without a means to pay for it,” said Mike Calhoun, president of the Center for Responsible Lending.
Due to the pandemic, Fannie Mae and Freddie Mac said that foreclosures and evictions would be held off for a minimum of two months. They also have plans in place to assist homeowners affected by the coronavirus virus so a repayment plan can be established.
The Mortgage Bankers Association (MBA) sent letters to the Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell starting their concern that deferred and late mortgage payments due to lost jobs and reduced hours caused by the coronavirus could end up triggering a financial debacle for mortgage servicers.
“The risk to the servicing industry is that the demands on advancing these payments to the investors will outstrip their cash ability to do so,” Robert D. Broeksmit, president and chief executive officer of the MBA, said in the letter.