In a letter dated April 23, 2020 sent to federal regulators, 27 Democratic members of the House of Representatives joined the call of other members of Congress to create a liquidity facility for residential mortgage loan servicers. 16 of the members signing the letter serve on the House Financial Services Committee.
The members note that third-party mortgage servicers are contractually obligated to advance the payments to the loan owner when borrowers do not pay, either due to delinquency or forbearance. The members then state that “[a]s more borrowers take advantage of forbearance, mortgage servicers will increasingly have to step in, and the required advances seem likely to exhaust the cash reserves of many or all of the mortgage servicers.” As a result, the members urge the federal government to create a liquidity facility that the servicers can draw upon to make the necessary advances. The members, however, argue that there be a condition to the use of the facility by a mortgage servicer. Noting that only federally-backed mortgage loans are eligible for a forbearance under the CARES Act, the members state that mortgage servicers who use the liquidity facility should be required “to offer the same forbearance and modification options to all borrowers.” The members note that $4 trillion in single-family mortgage loans are not covered by the CARES Act. While the CARES Act provides for forbearances, and not the ultimate modification of loans, the members address the issue of modifying loans to account for the missed payments that result from a forbearance.
While the members support the goal of tailoring each solution to the borrower’s specific situation, they state that “simplicity is a greater virtue when we likely will see millions of Americans exiting forbearance in a narrow window next Spring.” The members also state that a simplified approach will improve communications to borrowers and reduce the potential for mortgage servicers being overwhelmed in trying to modify loans. The members call upon federal agencies to “deploy a few, uniform modification options for borrowers at the end of their CARES Act forbearance period.” The members state that the options should include the FHA National Emergency Partial Claim approach, in which missed payments are rolled into an interest-free second mortgage, and that the selection of the final modification should be driven by affordability to the borrower. The members also state that all servicers should be required to demonstrate compliance with fair lending laws in conducting the modifications.
The members conclude by addressing concerns regarding the servicing industry, but noting that the immediate focus is addressing the liquidity issue: “[s]everal of us have longstanding concerns with the structure of the mortgage servicing market. We support further examination and regulation of capital and liquidity requirements in mortgage servicing, and we will work closely with you on any legislative proposals you have on this subject. But for now, the focus must be on urgent action to ensure that we do not face massive disruptions of the mortgage market and that homeowners get the assistance to which they are entitled.”
The letter was sent to U.S. Department of Treasury Secretary Steven Mnuchin, Federal Reserve Board Chair Jerome Powell, U.S. Department of Agriculture Secretary Sonny Perdue, U.S. Department of Housing and Urban Development Secretary Ben Carson, Federal Housing Finance Agency Director Mark Calabria, and U.S. Department of Veterans Affairs Secretary Robert Wilkie.
