Lenders are concerned that GSE failure could trigger the collapse of the housing market.
Treasury Secretary Steven Mnuchin said the U.S. has no current plans to create a Federal Reserve facility to inject funding into non-bank residential servicers, as recent government moves will help the firms get through the risk of millions of borrowers missing their monthly payments. Mnuchin pointed to Ginnie Mae’s decision last month to facilitate payments to mortgage bondholders themselves, thus covering an obligation that would have fallen on servicers. That combined with steps taken this week by the Federal Housing Finance Agency, which regulates giants Fannie Mae and Freddie Mac, will “deal with liquidity concerns,” he said in a Bloomberg News interview. “We’re not looking at a Fed facility for this at this time,” Mnuchin said. “The moves that both regulators have just taken are more than sufficient to create liquidity.”
The Treasury secretary and other government officials have been under pressure to bail out servicers, companies that collect monthly payments from borrowers and then funnel money to investors in securities made up of home loans. The firms are still obligated to pay bondholders even if homeowners go into forbearance, prompting the industry to argue that thinly-capitalized nonbank servicers could go under if swaths of borrowers stop paying. Residential lenders have argued that such a scenario could trigger the collapse of the U.S. housing market. Despite that concern, Mnuchin said the firms do not pose a systemic risk to the financial system.
Source: Bloomberg