Ginnie Mae to use natural disaster program to help struggling mortgage servicers
Changes to be implemented within next two weeks
Nonbank mortgage lenders, who are bracing for a massive cash crunch as borrowers across the country seek loan forbearance because of the coronavirus crisis, are set to get some relief thanks to a government program reserved for natural disasters.
Ginnie Mae, an agency within the Department of Housing and Urban Development that guarantees more than $2 trillion worth of mortgage-backed securities, plans to implement a pass-through assistance program through which it will advance principal and interest payments to investors on behalf of servicers who are short on cash.
“We have heard from our issuer and servicing partners that borrower forbearance arrangements that are nationwide in scope could place an enormous strain on issuers,” Ginnie Mae senior official Seth Appleton wrote in a blog post Friday. “Please know that we are taking action to address these concerns and potential liquidity challenges faced by Ginnie Mae issuers.”
The necessary changes to the program will be implemented within two weeks, Appleton wrote. Under existing rules, the advancing of funds due to a natural disaster is considered an event of default — which will not be the case for coronavirus-related advances.
Loans guaranteed by Ginnie Mae tend to have a much higher risk profile than Fannie Mae or Freddie Mac loans, and are expected to require more forbearance as the U.S. faces a severe economic crisis. Fannie and Freddie have also announced relief measures for landlords struggling to make mortgage payments.
Mortgage industry leaders have praised Ginnie’s move, but former Ginnie head Ted Tozer called it a “band-aid,” noting that a funding facility is still needed from the Federal Reserve and Treasury to aid servicers of other types of government-backed mortgages. [WSJ] — Kevin Sun