April’s Buzz Word: Forbearance
After almost 3 full years of what seemingly could be considered a gang war, (seriously The Bloods and The Crips get along better than The Dems & The Rubes) Congress, essentially forced into working together to help provide relief to those affected by the “COVID-19 Emergency”, signs into law the Coronavirus Aid, Relief, and Economic Security (CARES) act. Look… I feel like someone spent an exorbitant amount of time developing that acronym… time that could have been spent working on the actual content of bill, so that we’re (the mortgage industry) not staring down the barrel of destruction and dismay.
I’ve used this analogy before in the office… but I think it applies. It’s like we (the mortgage industry) were pinned down in a fox hole fighting for our lives with the rest of society and waiting for reinforcements (the Federal Government) to show up. All of a sudden these reinforcements show up and they are decked out… like Rambo 3 decked out… they slide down into the fox hole with us “Don’t worry… we got this!”. The reinforcements chuck a grenade high into the air, but there isn’t enough loft on the grenade to make it out of the fox hole and the grenade bounces back into the fox hole… BOOM!!! …enter Forbearance.
Alright I know that’s dramatic, but the point is the CARES Act was drawn up to help those in need (which I’m all for). It puts into place two protections for homeowners who have federally backed mortgages… this means Fannie, Freddie or Ginnie (I know they sound like extra’s on the Golden Girls) own your loan and ultimately collect the checks you’ve been writing for years. These protections 1.) Suspend or stop foreclosure activity (which is enough for it’s own post, but let’s stay on point here) and 2.) provide borrowers a right to forbearance for homeowners who are experience a financial hardship… okay Matt sounds dope… no payments… what’s the problem?
Well, the problem is this law doesn’t specify or lay out any details on who should or shouldn’t be eligible for this forbearance relief. Which means people that are still employed, making their regular wages (while in sweatpants… big shout out to sweats… unsung hero of 2020 so far) and are still able to make their payments on their home can just hit the pause button… no questions asked. BUT WHY IS THIS MY PROBLEM MATT?! I’m glad you asked! Just because you don’t have to pay doesn’t mean the debt is wiped clean. The mortgage servicers who collect your payments and try to explain what an escrow analysis is to you… must still make those payments to the mortgage backed securities that ultimately hold your debt. Don’t understand what I’m saying? Check this out, it should help you “kinda” understand.
The Mortgage Bankers Association (MBA) wrote a letter to the “high up money guys” (Federal Reserve Chairman Jerome Powell & Treasury Secretary Steven Mnuchin) and essentially said if only 25% of borrowers jump into this forbearance plan for 6 months or possibly even longer these servicers could be looking to advance $75 billion (yes billion with a B) in mortgage payments. I don’t care who you are… that’s a lot of money. Money that these servicers DO NOT HAVE. See, the original plan called for the agencies (the Golden Girls extras from earlier) to create “liquidity centers” (wow… what a word) to help these servicers pay for the advances… and the meetings were all set to get this done, but then Mark Calabria (the head of Federal Housing Finance Agency) said, “nah… you know what? Let’s wait and see what happens… I trust that the American people will use the honor system.”
THE WHAT?! The honor system?! Let’s let the media scare the crap outta people for 2 full months about practically the “end of days” and then offer them free money… with no restrictions AND then expect them not to take it… even if they don’t need it. Mr. Cooper (one of, if not THE largest mortgage servicers in the industry) reported on Monday that 86,000 borrowers have already applied for their forbearance plan and remember “no questions asked”.
Now, Ginnie has stepped in and will provide liquidity to those servicers who are holding onto the FHA, VA and USDA loans… they have to fill out paperwork and file claims, but they are offering some sort of assistance while Freddie and Fannie sit on their hands. If something doesn’t give this will create MASSIVE problems for non-bank mortgage lenders out there. Not only for those who are servicing their loans, but for those lenders who are selling to aggregators. PennyMac who is THE largest aggregator (an aggregator is a company that buys your loan from a smaller company, packages them up and sells them to the agencies… and sometimes decides to service it) came out on Monday and said, “Any loan in forbearance or for which forbearance has been requested is not eligible for purchase by PennyMac.. additionally, any loan that is in forbearance or for which forbearance has been requested up to 15 days post purchase by PennyMac may result in a repurchase.”
YIKES. LEGIT… pause and then… YIKES. This is a copycat industry and I’m going to assume more of these “aggregators” are going to follow suit.
Things are getting hairy out there.
Stay healthy and stay safe.
Talk to you soon,
Photo by Jp Valery on Unsplash