Mortgage Firms at Risk of Multibillion-Dollar Hit in Senate Bill

Mortgage companies could be forced to bear billions of dollars in costs under a Senate stimulus bill that allows some homeowners to postpone their monthly mortgage payments.

The legislation, which still faces hurdles before becoming law, proposes that households experiencing job losses or drops in income because of government-induced shutdowns shouldn’t lose their homes as a result.

The bill says little about who will finance what’s expected to be a widespread payment holiday for affected homeowners. With little expectation in Washington that mortgage holders will forgo billions of dollars in promised payments, the financial industry fears that companies that collect from borrowers and send the money to the owners of the mortgages may have to shoulder the burden.

The Mortgage Bankers Association, a Washington trade organization, estimates that if 25% of borrowers ask to postpone their payments for six months, the tab could be more than $75 billion. Servicers, which stand between borrowers and their creditors, would still be expected to advance that money to the investors that own most of the nation’s $11 trillion in mortgages for one- to four-family residences.

“The unprecedented and unexpected wave of forbearance requests will place a significant strain on mortgage servicers,” said Mike Fratantoni, chief economist for the group.

Much of the financial industry has coalesced behind proposals that call for the federal government to finance servicers’ expected payments to mortgage investors, either through the Federal Reserve or the Treasury Department.

Federal Housing Finance Agency Director Mark Calabria, who oversees government-sponsored enterprises including Fannie Mae and Freddie Mac, said Wednesday that many mortgage servicers could find themselves at risk of collapse.

Read more about Calabria’s warnings

To contact the reporter on this story:
Shahien Nasiripour in New York at snasiripour1@bloomberg.net

To contact the editors responsible for this story:
Michael J. Moore at mmoore55@bloomberg.net

Steve Dickson, Daniel Taub

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