Legal Alert

Senators Advocate for Mortgage Servicer Liquidity Assistance

April 9, 2020
A bipartisan group of U.S. senators sent a letter dated April 8, 2020 to U.S. Department of Treasury Secretary Steven Mnuchin, in his capacity as Chair of the Financial Stability Oversight Council (FSOC), urging prompt action to provide liquidity assistance to residential mortgage loan servicers.

The senators address the mortgage loan payment forbearance relief provided for in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and state it is likely that many families will be unable to make their mortgage payments as scheduled, which will result in widespread participation in the CARES Act forbearance program. The senators note that up to 25 percent of borrowers may seek assistance. Because mortgage loan servicers often must advance scheduled principal and interest payments to investors regardless of whether the borrowers actually make the payments, the senators caution that the advance obligation that results from CARES Act forbearances presents “an existential threat to these companies, and thus to the broader mortgage market.” The senators refer to a Mortgage Bankers Association (MBA) estimate that the advance obligation could reach $100 billion.

Addressing a concern that “some nonbank lenders may have adopted practices that made them particularly susceptible to constraints on their liquidity during a severe downturn,” the senators argue that this is not a reason to refrain from providing liquidity assistance now. Specific points asserted by the senators include that (1) “even if there are servicers whose thin capital and poor risk management structure make them inappropriate for assistance, ignoring the broader liquidity strain on the market right now would risk stress well beyond these companies” and (2) “the focus now should not be on longer-term reform [with regard to servicer liquidity], but on ensuring that the crisis now unfolding does as little damage to the economy as possible.”

The senators signing the letter to Secretary Mnuchin are Mark R. Warner (D-VA), M. Michael Rounds (R-SD), Robert Menendez (D-NJ), Thom Tillis (R-NC), Tim Kaine (D-VA), Jerry Moran (R-KS), and Tim Scott (R-SC).

The position of the senators is in stark contrast with the position of Federal Housing Finance Agency (FHFA) Director Mark Calabria, as reflected in a report from HousingWire. According to the report, Director Calabria believes that the level of forbearances will be nowhere near the 20 to 50 percent level that some are suggesting, and that if there are servicers that are having difficulty dealing with the advance obligation, FHFA would not provide liquidity assistance, but would have Fannie Mae and Freddie Mac use their ability to transfer the servicing to another servicer. And with regard to the transfer of servicing, Director Calabria indicated that the borrower experience would be better when moving from a small servicer to a large servicer. The Director’s statements drew sharp criticism from MBA President and CEO Robert Broeksmit, CMB.

In an MBA release, Mr. Broeksmit stated “[s]ervicers are required to offer borrowers widespread forbearance under a plan devised and approved first by FHFA and then codified by the CARES Act. Fannie Mae and Freddie Mac are contractually obligated for the payments to investors. Since Fannie Mae and Freddie Mac will eventually reimburse mortgage servicers for the payments they must advance during forbearance, Director Calabria should advocate for the creation of a liquidity facility at the Fed to ensure the stability of the housing finance market.” Mr. Broeksmit also stated that “[w]e . . . strongly disagree with [the Director’s] characterization of the customer experience as it relates to the size of a mortgage servicer. Millions of Americans are well-served by their local independent mortgage bank, community bank, or credit union, and many chose to obtain their mortgage from those institutions for that precise reason.” On April 4, 2020, the MBA joined a group of financing and housing advocates in issuing a statement calling on government regulators to provide a source of liquidity for mortgage servicers in view of the advance obligation associated with CARES Act forbearances.

FHA approved lenders may request access to the FHA Catalyst case binder module and claims module via the FHA Resource Center at or 1-800-Call FHA (1-800-225-5342).

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