Mnuchin says U.S. has no plans for mortgage servicer lifeline
Treasury Secretary Steven Mnuchin said the U.S. has no current plans to create a Federal Reserve facility to inject funding into nonbank mortgage servicers, as recent government moves will help the firms get through the risk of millions of borrowers missing their mortgage payments.
Mnuchin pointed to Ginnie Mae’s decision last month to facilitate payments to mortgage bondholders themselves, thus covering an obligation that would have fallen on servicers. That combined with steps taken this week by the Federal Housing Finance Agency, which regulates the mortgage giants Fannie Mae and Freddie Mac, will “deal with liquidity concerns,” he said in a Bloomberg News interview on Thursday.
“We’re not looking at a Fed facility for this at this time,” Mnuchin said. “The moves that both regulators have just taken are more than sufficient to create liquidity.”
The Treasury secretary and other government officials have been under pressure to bail out servicers, companies that collect monthly payments from borrowers and then funnel money to investors in securities made up of home loans.
The firms are still obligated to pay bondholders even if homeowners go into forbearance, prompting the industry to argue that thinly-capitalized nonbank servicers could go under if swaths of borrowers stop paying. Mortgage lenders have argued that such a scenario could trigger the collapse of the U.S. housing market.
Despite that concern, Mnuchin said the firms do not pose a systemic risk to the financial system.
Analysts said the Trump administration is taking a risk.
“This is a loss for an industry that was hoping for more substantive support,” said Isaac Boltansky, a financial policy analyst at Compass Point. But he added, “The Treasury and Fed will be forced to reassess if forbearance uptake rates continue moving higher.”
The FHFA tried to ease strains on servicers Wednesday by announcing that it would allow Fannie and Freddie to buy new loans that have just entered forbearance. It also said that servicers handling Fannie-backed loans would only have to facilitate borrowers’ missed payments to bond investors for four months, bringing it in line with Freddie.
The FHFA’s move to allow Fannie and Freddie to buy loans in forebearance “will only go so far and is designed as a buyer of last resort,” said Charles Gabriel, a financial policy analyst at Capital Alpha Partners.
“Why put that segment of the industry, which dominates both servicing and origination, through the equivalent of a real live stress test?” he asked, suggesting that the answer is the Trump administration wants to “force reform and reorder the sector.”