Industry leaders in the real estate sector are calling on the Federal Government to provide a liquidity facility to support a massive expected wave of homeowners requesting forbearance.
A liquidity facility is essentially financial support through the Federal Reserve’s purchasing of bonds or other assets, or direct lending, to create cash flow. In this case, it could be used to act as a lifeline at a time when many lenders are being asked to allow homeowners with government-backed loans to grant 90 days of forbearance.
Part of the CARES Act — the stimulus package aimed at revitalizing the slumping economy — includes mortgage forbearance for a period for the owners of single-family and multi-family homes with a government-backed mortgage.
A coalition of real estate and banking trade groups — which includes the National Association of Realtors, Mortgage Bankers Association, National Association of Home Builders and others — wrote a letter demanding the liquidity facility to support their efforts to allow homeowners the ability to forbear their mortgage payments.
“The established forbearance framework is appropriate, as it gets help to the most people as quickly as possible,” the letter reads. “But the scale of this forbearance program could not have been foreseen by mortgage servicers, or fully anticipated by regulators.”
“It is therefore incumbent upon the government to provide the final piece of the puzzle — a liquidity facility for single-family and multifamily servicers — to ensure that the entire industry can deliver much-needed economic relief to consumers through this unprecedented forbearance plan,” the letter continues. “While some servicers will not need assistance, many others will require temporary support to deliver forbearance at the scale and for the duration required.”
The letter’s authors claim that any delay in creating the liquidity facility could cause great volatility in the market. Mr. Cooper, a mortgage lender and servicer, said in a regulatory filing that 86,000 — or roughly 2.5 percent — of its customers were put on a forbearance plan after the passing of the CARES Act.
Jay Bray, the CEO of Mr. Cooper, told CNBC that he was told there would be federal liquidity to support servicers as part of the CARES Act.
“It’s frankly frustrating and ridiculous that we do not have a solution in place,” Bray told CNBC. “There is going to be complete chaos. We’re the largest non-bank. We have a strong balance sheet, but for the industry as a whole you’re going to start seeing problems soon.”