Home mortgage industry worried by forbearance relief promised in CARES Act

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While the $2.2 trillion CARES Act relief package passed by Congress late last month to help soften the economic fallout from the coronavirus crisis may be a lifeline for some workers, companies and even entire industries, that’s not the case for mortgage brokers.   

That’s because the legislation mandates that all borrowers with government-backed home mortgages like Fannie Mae and Freddie Mac be allowed to delay at least 90 days of monthly payments and possibly up to a year’s worth. 

Servicers, however, which are granting the payment deferrals to borrowers with no questions asked—as is required by the law—still have to pay mortgage bond holders.

“If there is forbearance on these loans, we’re still obligated to make payments to these agencies,” Assurance Financial regional sales manager Terry LeBlanc says. “So even though the borrower is not making their payments, we’re still liable to make our payments.” 

Assurance’s servicing department has been overwhelmed with calls and emails from borrowers requesting forbearance and that number is expected to grow, Leblanc says, as the number of layoffs across the country increases.

Indeed, the nation’s largest nonbank servicer, Mr. Cooper, has already granted more than 80,000 forbearances just since the legislation was passed and the requests keep flooding in, company CEO Jay Bray told CNBC.

Bray joined a broad coalition of mortgage and finance industry leaders over the weekend in sending a plea to federal regulators asking for desperately needed cash to keep the mortgage system running. They say the current crisis has brought their industry to the brink of collapse.

Closer to home, LeBlanc says Assurance Financial is in a good position for the time being and, given record-low interest rates, is still writing new mortgages. But he says companies like his can hold out for only so long without the same kind of assistance from the government that other industries have received.

“There’s no bailout for us, at least not as of right now,” he says. “We don’t know what the bottom line is going to be. We’re kind of taking a wait and see attitude.”

The forbearance measures passed by Congress do not forgive home loans; they just grant borrowers a deferral that will ultimately have to be repaid. LeBlanc says the industry is hoping that borrowers take that into consideration when weighing whether to seek a deferral.

“We’re hoping not everybody takes advantage of it,” he says. “Just because borrowers can ask for a deferral we’re hoping not everybody will.”

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