Mortgage crisis prompts U.S. to weigh harder with borrowers

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(Bloomberg) – With a wave of US mortgage borrowers looking to get monthly payment payments, regulators are taking steps to make it easier for businesses paying off loans and preparing for the reality they may need be adopting a more difficult line by specifying who is entitled to relief.

The likely increase in forbearance requests fueled by coronaviruses was exacerbated by the $ 2.2 trillion stimulus package passed by Congress last week. Legislation stipulated that homeowners affected by the devastating impact of the pandemic on the economy could delay payments for several months.

But lawmakers place few charges on borrowers, prohibiting mortgage agents from demanding documented proof of trouble. Instead, consumers would only have to attest that they are struggling.

Widespread abuse?

In anticipation of confusion, fighting and even widespread abuse as borrowers withhold payments, the agencies seek to clarify that the break is only for those who really need it. Officials from the Federal Housing Finance Agency and the Ministry of Housing and Urban Development are among those discussing the advisability of advising eligible persons, said those familiar with the matter.

Federal banking regulators said on Friday that they would be flexible in supervising mortgage agents and pursuing enforcement action provided companies make good faith efforts to help borrowers seeking to default on their payments.

Read more: Mortgage companies falter near crisis seen by regulators

Regulators could take other steps to clarify that the pain must be legitimate, such as demanding proof that borrowers have actually lost their jobs, said people, who asked for anonymity because the talks are private. Government watchdogs want to see how many consumers are asking for forbearance before taking more aggressive measures to clarify who can apply, people have said.

FHFA spokesman Raphael Williams said the agency interprets the stimulus legislation as requiring that consumers have lost jobs or income in order to benefit from the forbearance.

Mortgage relief is “for those who cannot afford to make payments due to the economic hardship caused by COVID-19,” said HUD director Ben Carson in an emailed statement. “If people are in a situation where they can pay their mortgage or rent on time, they should do it,” he said.

Wave of delinquency

According to the FHFA, about 300,000 borrowers whose mortgages are guaranteed by Fannie Mae and Freddie Mac applied for forbearance on April 1.

Problems are expected to worsen over the next few weeks as invoices become past due. Mortgage lenders are already preparing for the biggest wave of crime in history after a record 10 million people applied for unemployment benefits in the past two weeks. We also don’t know how long the crisis will last.

According to an estimate by Mark Zandi, chief economist at Moody’s Analytics, up to 30% of Americans on home loans – about 15 million households – could stop paying if the US economy remains closed during the summer or beyond. of the.

Non-bank pain

Non-bank institutions paying off mortgages are likely to be hit hard, as they are still forced to distribute monthly payments to mortgage bond investors, even if borrowers stop paying. As a result, operators are preparing for a liquidity deficit.

And FHFA director Mark Calabria said last week in an interview with Bloomberg Television that Fannie and Freddie, the mortgage giants that support about half of the country’s $ 10 trillion housing market, may need to borrow Loans past due on their books if missed payments accumulate. The Calabrian agency regulates Fannie and Freddie, who have been under government control since the 2008 financial crisis.

Read more: Why the mortgage market needs its fixed fixes

Under stimulus legislation, borrowers whose loans are insured by government agencies such as the Federal Housing Administration and the Department of Veterans Affairs would be eligible for forbearance. Consumers whose mortgages are guaranteed by Fannie and Freddie would also be eligible to skip payments.

Who is eligible?

Borrowers would be eligible for a 60-day forbearance if they can demonstrate financial stress related to the virus. The relief can be extended from 30 days up to four times.

While most of the new programs are aimed at helping homeowners, the government is also trying to help tenants. The FHFA has granted mortgage tolerance to American landlords in exchange for the suspension of evictions if the tenants cannot make payments.

Commercial borrowers with federally guaranteed loans could potentially skip payments for at least 30 days with a possible extension of another 60 days. Unlike individual consumers, businesses should document financial difficulties and be prevented from evicting tenants as long as they miss mortgage payments.

Helping tenants

The authorities are also considering taking additional measures to help tenants, a group that they say could cause further turmoil in the housing market as the crisis continues.

As the White House plans a fourth round of stimulus packages, it examines recommendations from housing agencies that include providing assistance through existing grant and bond programs to help tenants stay in their homes. residences, according to people familiar with the subject. Talks are still in their infancy and may change, people said, asking not to be named because the talks are private.

(Updates with the Federal Agency’s announcement on flexibility in the fifth paragraph)

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