Powell: Fed Watching Mortgage Industry Carefully

Federal Reserve Chair Jerome Powell said Thursday that the Fed is closely watching the economic situation around mortgage lenders and appeared to leave the door open to providing liquidity support to the industry.

In a webcast with the Brookings Institution, Powell discussed rate cuts, financial safeguards and lending programs enacted by the Fed and other regulators during the coronavirus pandemic. He specifically said the Fed is “watching carefully the situation with the mortgage servicers.”

“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.

His comments come amid a volatile political week in the mortgage lending industry as companies, advocates, regulators and lawmakers argue whether a liquidity facility is necessary to support non-bank mortgage 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 Mortgage Bankers Association released a report Tuesday that found forbearance requests grew by 1,270 percent between the week of March 2 and the week of March 16, and another 1,896 percent between the week of March 16 and the week of March 30. The share of loans in forbearance grew from 0.25 percent to 2.66 percent between March 2 and April 1.

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 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.

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

But FHFA Director Mark Calabria told the Wall Street Journal this 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.”

Democratic Sens. Mark R. Warner of Virginia, Tim Kaine of Virginia and Bob Menendez of New Jersey and Republican Sens. Mike Rounds of South Dakota, Thom Tillis of North Carolina and Tim Scott of South Carolina disagree.

“Given that we could see as much as $100 billion in mortgage payments forborne through this program, it presents an existential threat to these companies, and thus to the broader mortgage market,” the senators wrote.

In his comments Thursday, Powell emphasized the importance of the mortgage industry to the economy.

“The mortgage market is at the very center of our economy and very important for the real economy,” Powell said. “That’s why we have bought so many mortgage-backed securities at such an historically aggressive pace over the last few weeks.”

Watch Powell’s full comments here: