The Mortgage Bankers Association have announced a huge upsurge in forbearance requests. The requests have grown by 1,896% between March 16th-30th alone.
This is due to the Federal Government rush to support homeowners during the Covid-19 outbreak. Donald Trump signed into law last month the 2.2 Trillion CARES Act, including a provision that allows any homeowner with a federally-backed mortgage a 12 month freeze on mortgage payments if they are in financial hardship. The stimulus applies to a majority of homeowners with mortgages nationwide.
Whilst that is comforting relief for those in financial dire straits, there is no mention yet of the mortgage industry itself. The mortgage lenders themselves have payments to make to their investors, or the individuals who own the notes. Thus this could have a negative impact in the long run.
“The government has basically put in place a program that allows borrowers not to pay but it’s done nothing to backstop the servicers who are going to need that cash to make the payments themselves,” said Rick Sharga a mortgage industry veteran.
Housing experts have alluded that it will not only be the mortgage companies who will face problems, but that borrowers could also be left with problems.
Within a matter of weeks, the U.S. could see servicers “run out of cash and basically become insolvent,” said Karan Kaul, a research associate at the Urban Institute. As Servicers go bust their notes get transferred to other companies. Transferring the loans takes time & can be structured in a way that may be different from the original loan terms.
As with the last housing crisis millions of mortgages were transferred to different Servicers and data, documentation were lost and stored differently. Given that a home is one of the most significant purchases in a couples lifetime, this type of risk can be very stressful. This adds to the epidemic that is engulfing the nation.