Mortgage Bankers Warn Delayed Payments Could Bankrupt the System

March 25, 2020

Mortgage companies Fannie Mae and Freddie Mac have announced that borrowers unable to pay their mortgages because of the coronavirus can request a forbearance on their loans. While this is welcome news for homeowners who have been laid off or seen their businesses close, there could be unforeseen consequences for the mortgage servicers.

The companies that collect monthly mortgage payments are still required to pass those payments on to investors who own mortgage-backed securities, even if the borrowers don’t pay. They also have to pay all associated insurance and taxes.

The Mortgage Bankers Association, in a letter to the Federal Reserve and Treasury, warned that a large wave of unpaid mortgages could bankrupt the servicers. The MBA estimates that if a quarter of all borrowers are granted forbearance of six months or longer, the cost to servicers could amount to more than $100 billion and bankrupt the mortgage finance system. The MBA is not requesting that forbearance not be granted, but rather that the mortgage servicers get cash support to keep them afloat.


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