Please ensure Javascript is enabled for purposes of website accessibility

FHFA Director Indicates GSEs Are Unlikely to Bail Out Mortgage Firms

By Bram Berkowitz - Updated Apr 8, 2020 at 11:26AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Mark Calabria said he does not see any evidence of a systemic crisis among non-bank mortgage servicing firms.

One of the nation's top housing regulators said about two weeks ago that many mortgage servicing firms could fail if the coronavirus pandemic lasts for more than two months.

Now Mark Calabria, head of the Federal Housing Finance Agency, which oversees the government-sponsored entities (GSEs), has significantly changed his tune.

Calabria told The Wall Street Journal on Tuesday that he doesn't see a need for GSEs such as Fannie Mae and Freddie Mac to step in to aid the mortgage companies right now.

FHFA

Image Source: Getty

"I've seen zero [evidence] to suggest that there's a systemic crisis across the nonbank servicers," Calabria told the Journal. "If this goes on for a year, maybe. But I think the frustration here is a lot of just misrepresentation."

In late March, U.S. Treasury Secretary Steven Mnuchin convened a panel of top financial regulators to try and find solutions for a liquidity crunch that had surfaced among mortgage companies.

Non-bank mortgage lenders such as Quicken Loans immediately sell mortgages to Fannie Mae and Freddie Mac, who then package them into securities and sell them to investors. As a result, the mortgage companies need to consistently collect payments from borrowers and pass those on to investors.

Because the government is allowing borrowers to defer payments or request forbearance as a result of the coronavirus pandemic, many of those mortgage companies have said liquidity could dry up quickly. These firms, which are still on the hook for payments to investors, do not have access to the Federal Reserve like banks do, and no deposit base either.

Calabria said he hasn't seen crazy levels of forbearance requests -- 2% of Fannie and Freddie borrowers have requested it as of April 1.

But the lack of government clarity has been a problem for large mortgage aggregator PennyMac (PMT 1.84%)

The company recently told originators it would not buy any loan that is currently in forbearance. The company also said originators may need to buy back a loan that goes into forbearance within 15 days of PennyMac purchasing it.

Calabria said it would be difficult for the GSEs to provide financial assistance to the mortgage firms right now.

"I'm trying to preserve their safety and soundness," he said. "They simply don't have the capital to do this."

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

PennyMac Mortgage Investment Trust Stock Quote
PennyMac Mortgage Investment Trust
PMT
$15.48 (1.84%) $0.28
Federal National Mortgage Association Stock Quote
Federal National Mortgage Association
FNMA
$0.61 (0.33%) $0.00
Federal Home Loan Mortgage Corporation Stock Quote
Federal Home Loan Mortgage Corporation
FMCC
$0.60 (4.13%) $0.02

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
377%
 
S&P 500 Returns
123%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/07/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.