Mortgage Servicers in Good Shape to Avoid Bailout, Calabria Says

Fannie Mae and Freddie Mac’s regulator struck an optimistic tone Tuesday, saying that based on current loan forbearance rates, non-bank mortgage servicers stand a chance of getting through the coronavirus crisis without a U.S. bailout.

Federal Housing Finance Director Mark Calabria cited data showing that roughly 6% of borrowers with loans backed by Fannie and Freddie have postponed making payments. That level of forbearance translates into servicers needing to advance about $500 million each month to bond investors, a total Calabria said the firms can handle given that they are only obligated to make such payments for four months.

Mark Calabria

Photographer: Andrew Harrer/Bloomberg

“The total four-month obligation is about $2 billion,” Calabria said during a speech for a Mortgage Bankers Association online conference. “FHFA’s internal monitoring of enterprise servicer balance sheets indicates that non-bank servicers’ liquidity is multiples of this number.”

Calabria acknowledged that his positive assessment will be off base if forbearance rates spike. For instance, he said, if 15% of borrowers postpone payments, servicers’ monthly payment obligations jump to about $1.2 billion.

“We’ve seen a significant number of servicers in the last two months raise liquidity,” Calabria said. “I can say that for most servicers, they actually have a better liquidity position today than they had two months ago.”

Concern that servicers might fail during the pandemic stems from lawmakers’ March decision to let homeowners postpone payments for as long as a year if they face virus-related financial hardship. Servicers are still obligated to pay bond investors, and while Fannie and Freddie will eventually make them whole, they can face a liquidity crunch in the meantime.

Treasury Secretary Steven Mnuchin said last month that he has no plans to create a Federal Reserve rescue facility for the industry, despite industry lobbying for such a bailout.

Calabria also said Tuesday that the pandemic probably has pushed back efforts to release Fannie and Freddie from federal control by about three to four months.

The FHFA’s next step in ending the companies’ conservatorships is issuing a rule dictating how much capital they must maintain to protect against losses. Calabria said the rule will be proposed “very soon.”

To contact the reporter on this story:
Ben Bain in Washington at bbain2@bloomberg.net

To contact the editors responsible for this story:
Jesse Westbrook at jwestbrook1@bloomberg.net

Gregory Mott

© 2020 Bloomberg L.P. All rights reserved. Used with permission.