April 22nd, 2020
The Federal Housing Finance Agency (FHFA) on Tuesday capped the amount of missed home loan payments owed to mortgage bondholders that servicers will need to cover during the coronavirus pandemic.
FHFA Director Mark Calabria said in a Tuesday statement that mortgage servicers — which process home loan payments, take a servicing fee and pass the balance on to investors who own bonds funded by those mortgages — will only need to cover up to four months of missed payments.
The coronavirus economic relief bill signed by President Trump in March allowed any homeowner with a federally guaranteed mortgage to request up to six months of forbearance, a temporary pause on owed loan payments.
While the provision could be crucial aid for millions of Americans who’ve lost their jobs due to the pandemic and owe part of a combined $7 trillion in federally backed U.S. mortgages, it has also left mortgage servicers on the hook for billions in payments to mortgage bond-owners.
“Mortgage servicers can now plan for exactly how long they will need to advance principal and interest payments on loans for which borrowers have not made their monthly payment,” Calabria said.
Calabria’s decision to cap payment advance obligations comes after weeks of calls from mortgage industry advocates to help the sector weather the massive financial shock driven by the coronavirus pandemic.
There is roughly $5 trillion in bonds created through the packaging of federally backed mortgages, a market that helps anchor the financial system and give banks and lenders the ability to offer affordable mortgages to a wide range of borrowers.
The federal government encourages banks and lenders to offer cheap long-term home loans by buying those mortgages through the Federal National Mortgage Association and Federal Home Loan Mortgage Corporation — better known as Fannie Mae and Freddie Mac.
Calabria, who oversees Fannie and Freddie as the FHFA director, had been fiercely criticized by industry advocates for an initial refusal to offer financial support for servicers facing 1,900 percent increases in requests for forbearance and the prospect of billions owed to bondholders.