Mortgage Forbearance Requests Skyrocket as Servicers Plead for Interim Financing

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The number of U.S. mortgages in forbearance reached 5.95% of all loans as of April 12, as mortgage servicers continued to deal with a tsunami of forbearance requests flooding in as a result of the CARES Act.

That’s up from 3.74% of servicers’ portfolio volume the prior week, according to the Mortgage Bankers Association’s Forbearance and Call Volume Survey.

Mortgages backed by Ginnie Mae showed the largest growth (2.37%) from the prior week and the largest overall share in forbearance by investor type (8.26%).

Depository servicers – at 6.57% – surpassed independent mortgage bank (IMB) servicers (5.69%) for the highest share of loans in forbearance.

“With over 22 million Americans filing for unemployment over the past month, homeowners are contacting their mortgage servicers seeking relief, leading to a sharp increase in the share of loans in forbearance across all loan types,” says Mike Fratantoni, senior vice president and chief economist for the MBA, in a statement. “Mortgage servicers continue to receive a very high level of forbearance requests, but volumes were down somewhat compared to the prior week.

“Given that lockdowns and associated job losses will continue in the coming weeks, forbearance inquiries will likely rise again as we approach May payment due dates,” Fratantoni adds. “Borrowers facing COVID-19-related hardships should contact their servicer to review all of their options.”

Under the CARES Act, mortgage servicers are required to provide mortgage relief options to borrowers – including forbearance plans lasting for up to 12 months. But servicers are still obligated to make monthly payments to bondholders, creating a potentially large liquidity gap that will be difficult for some servicers – especially nonbank servicers – to cover, due to their limited capital reserves. Considering the high number of forbearance requests that are already in the pipeline, this liquidity gap is expected to quickly grow into the tens of billions of dollars. Although Ginnie Mae has instituted a special program that solves for this issue for its servicers, the Federal Housing Finance Agency has thus far taken the position that Fannie Mae and Freddie Mac servicers don’t need a liquidity facility – at least not as of yet. 

The Mortgage Bankers Association and a coalition of industry groups continue to lobby the federal government for a liquidity facility to help keep Fannie and Freddie servicers afloat.

“Mortgage servicers are performing an essential function of the housing finance system by continuing to advance funds to investors at a time when roughly 3 million homeowners are now in forbearance,” Fratantoni says. “To ensure market stability during these challenging times for consumers and the entire industry, servicers need access to interim financing so that they can continue to play this critical role.”

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