By Matt Scuffham
NEW YORK (Reuters) - U.S. mortgage firms facing billions of dollars of missed home loan repayments are continuing to push for emergency government support as data published Monday showed a further rise in borrowers asking to halt payments.
The number of people seeking to have mortgage payments paused or reduced rose to 7.5% as of April 26 from 7.0% a week earlier as the economic effects of the novel coronavirus outbreak stretched household finances, figures from the Mortgage Bankers Association (MBA) showed. The MBA estimates that 3.8 million homeowners are now in forbearance.
The surge in delayed payments could leave mortgage service companies, which pool home loans and sell them to investors, with a liquidity shortfall of as much as $100 billion over the next nine months, according to the MBA. That is because mortgage servicers still have to advance scheduled payments to investors even if borrowers fail to make their payments.
Mortgage servicers want the Federal Reserve and Treasury to introduce an emergency liquidity facility to cover those payments but Treasury Secretary Steven Mnuchin said last week there were no current plans to offer such a lifeline.
In an interview, the MBA's Chief Executive Officer Bob Broeksmit said it was still discussing the issues with the Fed, Treasury and Federal Housing Finance Agency.
"We don't see it as the end of the matter," he said. "We understand that the Fed and Treasury will continue to monitor the situation. We continue to advocate for the facility so we can prepare for the worst and hope for the best."
The Fed and Treasury declined to comment. The FHFA did not respond to a request for comment.
As part of last month's $2.3 trillion congressional rescue package, lenders must allow struggling borrowers to postpone mortgage payments. The law allows borrowers of mortgages backed by government entities Fannie Mae and Freddie Mac (OTC:FMCC) to delay up to a year's worth of repayments.
The FHFA said last month it would cap the number of payments mortgage companies must advance to investors in some government-backed mortgage bonds.
However, David Merkur, a partner at law firm Greenspoon Marder, which represents mortgage servicers, said there was still a serious danger of some firms going bust if a facility was not introduced.
"I don't think, without federal government assistance, the picture is very positive for them," he said. "If big servicers go out of business, it could lead to another housing crisis".
Servicers play a critical role in the mortgage finance ecosystem, receiving payments from borrowers and passing them on to investors, tax authorities and insurers.
Industry and regulatory sources say that forbearance data for May and June could be key to determining whether the Fed and Treasury intervene. Borrowers that used savings to make repayments in April may struggle in May and June, they say.
"The level of job market distress continues to worsen. That is why we expect that the share of loans in forbearance will continue to grow, particularly as new mortgage payments come due in May," said the MBA's Chief Economist Mike Fratantoni.
