Congressional Representatives Urge FRB to Assist Mortgage Servicers
Commentary by Steven Lofchie
Several Congress members urged the Federal Reserve Board ("FRB") to expand Term Asset-Backed Loan Facility ("TALF") eligibility criteria to provide needed liquidity to the mortgage servicing sector.
In a letter addressed to FRB Chair Jerome Powell, Representatives Vicente Gonzalez (D-TX), Barry Loudermilk (R-GA), Josh Gottheimer (D-NJ) and Ted Budd (R-NC) expressed concern as to instability in the mortgage servicing sector of the economy. The representatives expressed particular concern regarding:
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required liquidity to advance scheduled payments for borrowers who take advantage of the forbearance options under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"); and
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increased margin calls on mortgage servicers from existing repurchase and warehouse lenders as the values fluctuate significantly for mortgage-backed securities ("MBS"), commercial mortgage-backed securities ("CMBS") and commercial real estate collateralized loan obligations ("CRE CLOs") that are pledged as collateral.
The representatives warned that virtually no mortgage servicer has sufficient liquidity to survive an extended period during which a significant portion of borrowers ceases making mortgage payments. The representatives further emphasized the importance of the support that MBS, CMBS and CRE CLOs provide to the housing sector. In light of that needed support, the representatives urged the FRB to expand the TALF program to include as eligible collateral MBS, CMBS and CRE CLOs rated investment grade at issuance.
Commentary
One unfortunate, but inescapable, fact illustrated by the letter is that forbearance requirements are not cost-free. If borrowers do not have to pay their loans, then servicers will in turn need government assistance or they may fail. In the housing and real estate market, the long-term economic cost of those failures could be significant.