Tags: Coronavirus | Financial Markets | depression | stimulus | market | servicers

Congress Needs to Save Mortgage-Payment Liquidity — Fast

mortgage bailout

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Wednesday, 25 March 2020 12:54 PM Current | Bio | Archive

One of the messages that young Clark Kent receives from his father Jor-El, as he is training him to become Superman, is that his greatest power is his example. Superman could try force the world to be virtuous, but that decision itself is not virtuous.

"It is now time for you to rejoin your new world and to serve its collective humanit," Jor-El tells his son." It is forbidden for you to interfere with human history, rather, let your leadership stir others to."

And if this is a good lesson for Superman, the superlative personification of American power and virtue, then it’s a good lesson for the federal government too. This is a particularly important lesson nowadays as it really seems like we need some super help.

Without immediate action, the coronavirus-inspired crunch we find itself with tailspin the world into a second Great Depression. The only force strong enough to prevent that is the federal government. At the time of this writing, Congress is in negotiations on a coronavirus stimulus bill — intended to serve as a lifeline while the otherwise roaring 2020 economy has been set adrift.

The pending $1.8 trillion stimulus should serve this purpose, but there’s the possibility that a new housing crisis may occur if Congress does not handle the stimulus properly.

A one-time stimulus is an appropriate step, but it needs to include measures to make sure we avoid another housing crisis.

While both renters and buyer fear that the momentary disruption to their income will prevent timely payments, the Federal House Finance Agency (FHFA) is taking steps to protect them. The FHFA announced last week it had instructed housing titans Fannie Mae and Freddie Mac to suspend all foreclosure actions and evictions for at least 60 days because of the coronavirus. Ginnie Mae, which seeks to help make low-income housing affordable, is expected to make a similar announcement.

These are wonderful steps for FHFA to take, but Congress needs to follow up on it with two major provisions.

One, is a standard forbearance program that defers interest and principal payments for six months or more. A temporary solution, providing this funding facility to servicers would allow the financial system to continue functioning as a bridge out of this crisis.

Second, for the government to provide access to third-party liquidity to the mortgage servers to make up for the lost money. Ginnie Mae has required payments to investors, taxing authorities, and other stakeholders to cover for the conora-delinquent borrowers.

Doing this would require a legislative change to the acknowledge agreement with loan servicers, making the agreements consistent with how Freddie and Fannie have access to third-party liquidity. This well help to advance tax and insurance payments for homeowners while they are not paying.

Allowing this to happen will have terrifying repercussions.

Non-bank mortgage lenders will almost certainly curtail lending volumes in an effort to preserve necessary liquidity, reducing liquidity in the new-issue mortgage market and restricting the availability of credit to consumers, particularly those served by Ginnie Mae programs.

Then, a widespread liquidity crisis among non-bank servicers could, within weeks, create chaos for millions of American borrowers. Then, turmoil among loan servicers could also create material dislocation in the mortgage-backed security market, given uncertainty regarding continued timely payment of MBS coupons due to investors.

There are about 12 million Ginnie Mae borrowers, accounting for $2 trillion in single-family mortgages and. Should their mortgage loans all freeze, the ripple effect to the economy of a disruption would be devastating for the whole economy. With Congress rushing to the finish line for a massive $1.8 trillion coronavirus stimulus bill they need to make sure they don’t ignore any systemic problems that may cause a new meltdown of the housing market and another 2008 style recession.

The private sector should not be on a permanent government lifeline, but this is a time when only Uncle Sam’s leadership can stir others to action. Democrats in the Senate are stalling on the stimulus package, which is good if that means we get a better bill, but it’s unthinkable if they’re doing it just for partisan politics.

Congress’s coronavirus package needs to be more powerful than a locomotive and we need it faster than a speeding bullet. Now’s not the time for partisan kryptonite.

Jared Whitley is a long-time politico who has worked in the U.S. Congress, White House, and defense industry. He is an award-winning writer, having won best blogger in the state from the Utah Society of Professional Journalists (2018) and best columnist from Best of the West (2016). He earned his MBA from Hult International Business School in Dubai. To read more of his reports — Click Here Now.

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JaredWhitley
Congress’s coronavirus package needs to be more powerful than a locomotive and we need it faster than a speeding bullet. Now’s not the time for partisan kryptonite.
depression, stimulus, market, servicers
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2020-54-25
Wednesday, 25 March 2020 12:54 PM
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