MReport May 2020

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12 | M R EP O RT COVER STORY SPECIAL REPORT: COVID-19 Mortgage Servicers Preparing for Liquidity Shortages Jay Bray, Mr. Cooper Group, CEO: "It would turn into a housing crisis." P resident Donald Trump's recently signed $2 trillion stimulus package which will, among other things, allow homeowners hurt by the COVID-19 crisis to postpone mortgage payments for up to 12 months. Despite the efforts made by regulators and lawmakers, however, many in the industry believe that the stimulus may end up hurting the mortgage industry. According to CNN, analysts believe the Fed will step in soon, as after granting homeowners for- bearance, servicers are still on the hook with investors to continue paying principal and interest on the mortgages, leading to servicers lacking the cash necessary to cover missed payments. "It would be complete conta- gion. It would turn into a housing crisis," Jay Bray, CEO of Mr. Cooper, told CNN Business. Tendayi Kapfidze, Chief Economist, Lending Tree, said the payments to Americans will be kept to help people meeting financial obligations, especially the more than 3 million who filed for unemployment. "There is a big risk to our servicers from borrowers not sending in payments as they would still need to meet their obligations to investors," Kapfidze said. "This is especially acute for nonbank lenders who do not have sufficient reserves in place. It was disappointing that the bill did not directly address this risk." To address these concerns, and to introduce ways to mitigate the unintended consequences of mor- atoriums, the National Mortgage Servicing Association (NMSA), a nonpartisan organization driven by senior executive representation from the nation's leading mortgage servicing organizations, an- nounced a proposal to ensure that the up to $100 billion in liquidity necessary to provide payment relief for up to 12 million Ginnie Mae homeowners is secured. The NMSA released a proposal outlining their recommended steps in the light of some of these announced governmental programs. NMSA's proposal outlines how Ginnie Mae programs, which include residential mortgage loans guaranteed by FHA, VA, and USDA, play a crucial role in the housing market by serving low-to- moderate income, communities of color, first-time homebuyers, and rural and veteran mortgage bor- rowers who typically do not qual- ify for conforming or bank loans and may be especially vulnerable during periods of economic stress, including the present COVID-19 pandemic. To assist with liquidity issues, Ginnie Mae has launched a Pass- Through Assistance Program (PTAP). Lenders with a P&I shortfall may request Ginnie Mae advance the difference between available funds and the scheduled payment to investors. "This PTAP will be effective immediately upon publication of the APM for Single-Family program issuers, with correspond- ing changes made to Ginnie Mae's MBS Guide in due course," a re- lease says. "We anticipate publish- ing PTAP terms for HMBS (re- verse mortgage) and Multifamily issuers shortly thereafter." Homeowners at Risk of Missed Payments 13 million American jobs at risk due to virus. M illions of homeowners and renters alike are at risk of losing their jobs in the wake of COVID-19, with around 13 million Americans reliant on wages from at-risk jobs, according to the Harvard Joint Center for Housing Studies (JCHS). JCHS notes that many of these households were more likely to be cost-burdened than those relying on income from other industries even before losing work. The JCHS' research indicates that renter households are even more likely to be burdened with COVID-19 layoffs, as renter households relying on wages from at-risk jobs had a cost burden rate of 53% while 35% of renter households in other jobs were burdened. "The loss of service jobs would undoubtedly worsen affordability for households who already must spend an outsized portion of their incomes on rent each month," Whitney Airgood- Obrycki, Research Associate, JCHS said. Forty percent of households (5.2 million) whose wages came exclusively from at-risk jobs were cost-burdened as compared to 22% of households (13.1 million) whose income came only from other jobs. While it is difficult to know what a COVID-19 recession will mean for housing markets, the ongoing affordability crisis will only worsen in coming months. Federal Housing Finance Administration Director Mark Calabria notes that mortgage rates and sales are expected to recover after the crisis, as it is now disrupting both the primary and secondary mortgage markets. Additionally, Calabria stated that the slowdown in economic activity will increase the number of homeowners who struggle to make their mortgage payments. However, recently, there have been low rates of serious delinquency. "In the secondary market, Agency MBS liquidity has decreased as investors pull back, especially REITs, money market funds, and some banks," Calabria said. "Also, the Agency debt market has dislocated as a result of economic uncertainty, investor aversion to long-term debt, and a marketwide flight to cash." The federal government announced a temporary moratorium on public housing evictions and foreclosures of mortgages backed by Fannie Mae, Freddie Mac, and the Federal Housing Administration. State and local governments are similarly implementing eviction protections for renters, though these delay but do not forgive rent payments. "While these measures are a needed stopgap to help households with reduced incomes now, continued efforts and assistance will be necessary to ensure that those who do lose major sources of income will still be able to afford housing," Airgood-Obrycki added.

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