Americans who have lost income or are sickened by the coronavirus are getting some relief from their mortgage companies.
Major lenders are offering a moratorium on payments for borrowers who have lost their jobs or been furloughed from work.
“If they have been laid off or had a drop in work hours, are ill or affected, there will be a program available to them to forbear mortgage payments,” said Robert Broeksmit, president and CEO of the Mortgage Bankers Association. “Generally it would be up to six months.
“If the hardship endures beyond that, there could be another conversation that could extend it up to another six.”
Broeksmit said what the mortgage industry is offering is similar to payment delays previously used during natural disasters. “But this is a lot more complex,” he said.
The first step is for borrowers to contact their mortgage servicing firm.
“They don’t have to provide a doctor’s note or a layoff letter,” Broeksmit said. “It’s not a long, in-depth process.
“The servicers are not going to report to the credit bureaus — that’s covered as well.”
Some borrowers may have trouble getting through to their lenders.
“The servicers are suffering the same effects as the rest of the country,” Broeksmit said. “Their capacity is down right now, and they are working remotely.”
He emphasized that mortgage holders who haven’t suffered pandemic-related income losses shouldn’t seek assistance.
“If you haven’t had an impact that affects your ability to pay, just keep paying,” Broeksmit said. “This is not a payment holiday.”
In giving relief to homeowners, the mortgage industry is being hit with its own problems. Servicing companies are on the hook for billions of dollars in payments their customers are delaying.
“Generally speaking, the servicer has to pass along the principal and interest payment to the mortgage investor whether the borrower makes the payment or not,” Broeksmit said. “If we have a high or even a modest percentage of borrowers take advantage of this forbearance and it lasts more than a month — which I am afraid it probably will — the cash flow demands on the servicers to advance these payments to the investors is intense.”
If a quarter of the nation’s home mortgage holders skipped payments for three months, servicers would have to come up with an estimated more than $30 billion to cover the shortages.
Broeksmit said mortgage companies are asking the Federal Reserve to provide the cash needed to keep the industry going.
“The mortgage industry is ready and willing and able to step up and help with borrower relief,” he said. “But we need a federal facility to provide a liquidity backstop so the servicers don’t exhaust their cash reserves.
“All we are asking is the Fed set up liquidity lines so you can borrow them from the Fed, and when you get repaid you can pay them back.”
North Texas is home to some of the country’s biggest mortgage servicing firms, including Mr. Cooper, formerly Nationstar Mortgage Holdings Inc., and Caliber Home Loans.
Even with the payment forbearance, mortgage companies are expecting a rise in foreclosures. But Broeksmit said the increase in borrower defaults will be different from previous downturns.
“The borrowers’ ability to pay may have been temporarily interrupted, but that doesn’t mean it’s a bad loan,” he said.
While there has already been a surge in Texas unemployment applications, lenders say it’s premature to gauge how many people in the state will apply for mortgage relief.
“I think it is too early based on the 30 day payment cycles for wide spread requests to be made,” said Jim Clapp, vice president of the Texas Mortgage Bankers Association and president of Plano-based Certainty Home Loans. “This forbearance plan is nothing different than a natural disaster that hits a specific region like Hurricane Harvey.
“The problem with this one is that is not localized and is nationwide.”
Home foreclosures have recently been near record low levels.
“The good news is we are coming off a 40-year low in mortgage delinquencies and foreclosures and a 50-year low in unemployment,” said Frank Nothaft, chief economist with CoreLogic. “The balance sheets of most American families are in good shape.”
But Nothaft still expects the number of mortgage defaults to rise.
“It will definitely happen,” he said. “We have seen it happen in every single recession the U.S. economy goes into.
“The question will be how severe this recession is and what kind of forbearance programs are in place to lighten the hurt on homeowners.”
Mortgage holders will still have to pay the deferred payments when the pandemic crisis ends.
“This is not a mortgage holiday,” said Raphael Williams, a spokesman for the Federal Housing Finance Agency. “You have to pay this money on the back end.
“Your servicer will work with you on a plan to repay once the forbearance is over,” he said. “What we are trying to do here during the crisis is to prevent foreclosure and people losing their homes."
Many Americans are still headed to the mortgage office to refinance their houses at very low interest rates.
Even so, the Mortgage Bankers Association said that nationwide home loan applications fell almost 30% last week - including a 34% dip in refinancing activity.
Broeksmit said the mortgage industry is working to keep its business running while many other sections of the economy are shutting down.
“We have to keep real estate transactions happening,” he said. “If you signed a sales contract 60 days ago and you are trying to close your home we want transaction going ahead.”
