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How the CARES Act May Impact Mortgage Servicers

Last week, President Donald Trump signed a $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 forbearance, 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 contagion. 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 non-bank 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 moratoriums, the National Mortgage Servicing Association (NMSA), a nonpartisan organization driven by senior executive representation from the nation’s leading mortgage servicing organizations, announced 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 borrowers who typically do not qualify 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 launcheda 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 corresponding changes made to Ginnie Mae’s MBS Guide in due course,” a release says. “We anticipate publishing PTAP terms for HMBS (reverse mortgage) and Multifamily issuers shortly thereafter.”

About Author: Seth Welborn

Seth Welborn is a Reporter for DS News and MReport. A graduate of Harding University, he has covered numerous topics across the real estate and default servicing industries. Additionally, he has written B2B marketing copy for Dallas-based companies such as AT&T. An East Texas Native, he also works part-time as a photographer.
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