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WSJ: The Mortgage Market Never Got Fixed After 2008. Now It’s Breaking Again.

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JO: You all know I’ve been watching the Mortgage Servicers, worried that they won’t be able to handle the mortgage defaults and their investors on the other side. I believe that the Government will probably do enough to save these companies, but the less-obvious problem is that if people don’t have access to mortgages (stricter qualifications) for a full year, then we might see harder problems in the RE industry proper (homebuilders, etc)

https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Addresses-Servicer-Liquidity-Concerns-Announces-Four-Month-Advance-Obligation-Limit-for-Loans-in-Forbearance.aspx

https://www.wsj.com/articles/the-mortgage-market-never-got-fixed-after-2008-now-its-breaking-again-11588977078?mod=hp_lead_pos1

“In good times, that task involves collecting payments from borrowers and handing them to investors that own the loans, plus handling odds and ends such as taxes. In exchange, the servicer gets a slice of the interest. In bad times, servicers are supposed to create new payment plans for struggling borrowers, which takes much more work and expense. When all else fails, servicers initiate foreclosures.”

“The structure of the U.S. mortgage market is much the same as it was before the crisis. Pools of mortgages are packaged and sold to investors around the world. When a borrower stops paying, servicers are caught in the middle, forced to front payments to the investor, even though they aren’t receiving money from the borrower.”

“The virus has forced millions of homeowners to suddenly stop making payments. At the same time, many mortgage companies aren’t built to handle an economic collapse or help their customers through it. Many of them are nonbanks that don’t have deposits or other business lines to cushion them”

“Lawmakers recently outlined how struggling borrowers can request so-called forbearance plans, by which they pause their monthly payments. If the mortgage is government-backed, then companies are generally supposed to grant the request.”

“About 7.5% of borrowers had obtained forbearances as of April 26, according to a survey by the Mortgage Bankers Association, or MBA”

“If forbearance rates reach the mid-to-high teens, few servicers are expected to have the cash to meet their advance obligations”

“The stimulus bill provided little detail on when borrowers would have to make up deferred payments. But the regulator that oversees Fannie Mae and Freddie Mac, the government-sponsored mortgage companies that back conventional loans, clarified recently that its homeowners won’t have to make up their missed payments all at once. The FHA program has made similar comments.”

“Nonbanks say they have spent significant time bolstering their businesses for a downturn. Some said in recent earnings reports that they now expect the coronavirus fallout to be smaller than they initially feared. “

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