Lawmakers call on Treasury to provide liquidity for servicers

by Ryan Smith13 Apr 2020

A bipartisan group of senators is calling for the federal government to take immediate action to provide temporary liquidity to mortgage servicers during the COVID-19 outbreak.

Due to the economic impact of the outbreak, servicers are mandated to provide mortgage forbearance to struggling borrowers. However, many industry groups have warned that without a government liquidity facility, servicers themselves could soon be in dire financial straits.

In a letter to Treasury Secretary Steve Mnuchin, a group of senators led by Sen. Mark Warner (D-Va.) asked the Financial Stability Oversight Council (FSOC) to provide temporary liquidity to mortgage servicers.

“Given the magnitude of the economic stress that many Americans will face as a result of the virus, and the early numbers we are seeing from lenders across the country, it is likely that many families will be unable to make their payments as scheduled, triggering widespread participation in the program, with potentially up to 25% of borrowers seeking assistance,” the senators wrote. “While this is a reminder of the program’s importance, it also presents a challenge. To put this in perspective, according to Moody’s Analytics, last year servicers had total net profit of less than $10 billion. The institutions that normally provide servicers with their liquidity will be unwilling to provide this unprecendented level of support, at least at a rate that many servicers could possibly afford.”

In this situation, the senators said, many servicers would have no way to cover their own obligations.

“Since this liquidity need was created by the CARES Act’s entirely appropriate, but extraordinary requirement to provide widespread forbearance, measures should be taken to ensure that the business required to execute on that commitment can survive to see it through,” the senators wrote.