Mortgage industry seeks billions in federal help as homeowners stop paying their loans

By: The Washington Post

Many of the country’s largest mortgage lenders are warning they will be soon pushed to the brink of failure with millions of Americans laid off due to the Coronavirus outbreak likely to miss their next loan payment, threatening to disrupt the housing market in a way not seen since the Great Recession.

If 25 percent of borrowers cannot make their mortgage payments because of job loss or other financial disruptions due to the coronavirus, mortgage industry officials say they could need nearly $40 billion in federal help over the next three months and $100 billion over nine months. The industry tried but failed to secure language guaranteeing some mortgage companies access to government loans in the emergency $2.2 trillion economic rescue package passed by the Senate and expected to be voted on by the House Friday.

The mortgage industry now has set its sights on grabbing a portion of the $454 billion in loans and loan guarantees allocated by the Treasury Department and the Federal Reserve under the legislation. That pot of money is intended to help large companies remain afloat and has fewer strings attached than other portions of the package.

Without federal assistance, some mortgage servicers say they could go out of business within a few months, potentially making it more difficult for homeowners to secure mortgage relief as the U.S. economy grinds to a halt to contain the growing pandemic.

“A small sliver of that could easily be dedicated to a fund that would provide the liquidity to our servicers, while borrowers are getting back on their feet from the coronavirus," said Bob Broeksmit, the chief executive of the Mortgage Bankers Association, a large industry trade group.

A decade after shoddy mortgages nearly brought down the U.S. economy, the coronavirus has exposed new weakness in the housing market, which is increasingly dominated by firms operating outside the traditional banking system and with little federal oversight. Nearly 60 percent of the America’s mortgages are secured through non-bank lenders such as Quicken Loans. One in three of the country’s $11.2 trillion in mortgages is overseen by non-bank servicers, which collect borrowers’ payments every month, and say the economic fallout from the pandemic represents an unprecedented challenge to their future.

But their pleas for help have met skepticism from groups that have long called for tougher industry oversight. One of the companies reported $2 billion in revenue last year.

“How can these companies credibly lobby against strong regulation and supervision during peaceful economic times, and then beg the government for assistance during periods of stress,” said Gregg Gelzinis, senior policy analyst at the left-leaning Center for American Progress. “This industry needs to be more resilient.”

Mortgage lenders are preparing for an avalanche of distressed homeowners that could drive a housing crisis that rivals the one that left millions of Americans in foreclosure a decade ago. This time, rather than homeowners falling behind on their payments slowly over several years, mortgage delinquencies could spike suddenly as people find themselves without a job or have their salaries cut within the next few months.

“The last time the problems were concentrated in borrowers with weak credit and bad loans,” said Guy Cecala, publisher of Inside Mortgage Finance. “This time the problems are going to be non discriminatory. It will apply to people with good credit, or someone who is well off, and ran a restaurant. We haven’t had a crisis where everyone is impacted regardless of financial situation.”