Twelve years after the 2008 financial crisis, America’s housing finance system is once again under strain. The acute decline in economic activity that coronavirus fears and government‐mandated lockdowns have caused is disrupting cash flows for millions of households and businesses. In just four weeks, 22 million people have filed unemployment claims. Many among the new jobless are homeowners who will be unable to make payments on their loans, at least for a while.
Some legislative actions have sought to help these hard‐pressed households. As part of its economic relief provisions, the CARES Act requires servicers of federally‐backed mortgage loans to grant forbearance of up to 180 days (extensible for another 180) to any eligible mortgage‐holder who requests it, without additional documentation. Eligible mortgages include those backed by Fannie Mae and Freddie Mac, two government‐sponsored enterprises (GSEs) currently in the conservatorship of the Federal Housing Finance Agency (FHFA), and by Ginnie Mae, which the federal government guarantees directly. Altogether, such mortgages comprise around 65 percent of outstanding mortgage credit in the United States.
These CARES Act provisions have put mortgage servicers, who collect borrowers’ monthly loan payments and pass them on to mortgage‐backed securities (MBS) investors, in a bind. They must still comply with their contractual obligations, including having to make advances to some investors even when borrowers go delinquent. Yet the suddenness and extent of coronavirus‐related economic distress means that many will soon face a delinquency rate far greater than they would normally plan for.
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