As the nation continues working to adapt to the ongoing consequences of the COVID-19 outbreak, both government agencies and industry stakeholders are working diligently to ensure stability and assist struggling homeowners. Some solutions put forward have included foreclosure suspensions, forbearance programs, and other forms of mortgage relief. On Friday, the National Mortgage Servicing Association (NMSA), a nonpartisan organization driven by senior executive representation from the nation’s leading mortgage servicing organizations, released a proposal outlining their recommended steps in the light of some of these announced governmental programs.
The opening of the proposal states:
<blockquote>The announcement of foreclosure moratoriums in response to COVID-19 has led to a growing concern of servicers being able to advance funds due to liquidity constraints. To address these concerns, and to introduce ways to mitigate the unintended consequences of moratoriums, the National Mortgage Servicing Association announced a proposal today 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.</blockquote>
In a statement, Ed Delgado, President and CEO of Five Star Global, said, “With these extraordinary times, we recognize that the Federal government must work to present unprecedented solutions. To that end, the National Mortgage Servicing Association has assembled several strategic recommendations designed to help ensure liquidity to the banks, avoid the impact of unintended consequences, and protect American homeowners. We look forward to working with all stakeholders toward bringing our nation through this difficult time.”
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.
The proposal suggests that these borrowers could be assisted by a standard forbearance program, allowing them to defer interest and principal payments for up to six months, which is broadly consistent with proposed actions to address the COVID-19 pandemic on the part of Fannie Mae and Freddie Mac. Failing to support Ginnie Mae borrowers risks contributing to a downturn in the housing market and would put at risk the guaranty funds at FHA, VA, and USDA to the extent that higher delinquency and foreclosure-related losses emerge over time.
The NMSA also notes that this liquidity could be provided by the Federal Reserve through its 13(3) program and would be repaid after the six-month forbearance program ends.
“There would be no direct cost to the Federal Government,” the NMSA proposal states. “The losses associated with borrowers who are not able to resume payments would be absorbed by the respective guaranty funds. Without the 13(3) program or other federally backed financing mortgage servicers would not be able to advance funds to Ginnie Mae bondholders, which would risk further disruption to the US mortgage and housing market.”
The NMSA suggests that Ginnie Mae, whose borrowers account for almost 20% of the mortgage market, would benefit from amending the Ginnie Mae acknowledgement agreement to permit separate financing of advances, which is the standard practice at Fannie Mae, Freddie Mac, and private mortgage investors.
You can read the NMSA’s proposal in full by clicking here.