Mnuchin: “Very Aware” Of Challenges Facing Non-Bank Lenders

Treasury Secretary Steven T. Mnuchin said regulators are “very aware of the issue” around non-bank lenders facing liquidity challenges brought on by borrowers not making mortgage payments during the coronavirus pandemic.

“We’re very aware of the issue,” Mnuchin said at a White House briefing Monday. “Quite frankly, we’ve been studying this issue way before COVID and had concerns about some of these non-bank servicers not being well-capitalized, but we’re going to make sure that the market functions properly.”

Mnuchin also said, “We had a subcommittee task force … that specifically studied this issue. We have all the appropriate people on it. Ginnie Mae has automatically taken some action. We’ve had conversations with the FHFA as to what they’re going to do for Fannie and Freddie. And we’ve said that to the extent they need certain authorities from the treasury, we will accommodate that.”

His comments were in response to a letter from House Republicans – which followed a similar letter from a bipartisan group of senators – urging the creation of a liquidity facility to support non-bank lenders.

The $2 trillion CARES Act comes with significant benefits for homeowners who are unable to make their mortgage payments, most notably a moratorium on foreclosures and the right to forbearance. Forbearance allows borrowers with a federally backed mortgage to put off payments for at least six months if they suffer economic hardship during the pandemic.

The law requires lenders to approve forbearance if requested by the borrower. The share of loans in forbearance climbed from 2.73 percent to 3.74 percent during the week ending April 5, according to the Mortgage Bankers Association’s Forbearance and Call Volume Survey. That’s up from 0.25 percent on March 2.

The MBA estimates that the burden on lenders could range from $75 billion to $100 billion or higher if one-quarter of borrowers take advantage of forbearance for six months or longer.

A failure to act could trigger a mortgage crisis, advocates of the facility warn.

FHFA Director Mark Calabria told the Wall Street Journal last week, “I’ve seen zero [evidence] to suggest that there’s a systemic crisis across the nonbank servicers. If this goes on for a year, maybe. But I think the frustration here is a lot of just misrepresentation.” He dismissed their complaints as “spin.”

But Federal Reserve Chair Jerome Powell said last week that the Fed is “watching carefully” the economic situation around mortgage lenders and appeared to leave the door open to providing liquidity support to the industry.

“We certainly have our eyes on that as a key market that does support households and consumer spending, really, which is of course 70 percent of the economy,” Powell said.

A coalition of 15 mortgage, housing and real estate organizations have urged the Federal Finance Housing Agency and other regulators to create a liquidity facility to support non-bank mortgage lenders. They say it is necessary to ensure cash is available to mortgage lenders who may need financial support as they help borrowers during the coronavirus pandemic.