David Stevens on the Impact of Forbearance
2020 03-25 | NFM TV
Interest rates are back down, but there are still links that are broken in the mortgage chain according to former FHA Commissioner and MBA President, David Stevens. He shared the absolute latest effort on Capitol Hill to come to the rescue of the mortgage industry in this NFM TV exclusive late Wednesday afternoon.
Full Transcript is Below:
- Welcome into NFMTV, I'm your host, Greg Sher. We are joined right now by Former President of the MBA, David Stevens, also Former FHA commissioner, and currently the CEO of Mountain Lake Consulting. David, glad to have you with us again, can you catch us up to speed, is there any relief in sight for the servicers at this time?
- Well, as we, early this morning, probably waking up much in the news that a $2 trillion agreement principle had been made between the Democrats and Republicans. But the text of that bill actually has not been written yet, It's being worked on right now. So it tells you how real time this all is. In that package, there is over $500 billion in specific relief to our industry, and that's outside of whatever payments are made to Americans and unemployment benefits, and things of that sort. The package does include a significant amount of money for liquidity. It'll be using the Fed window, opening that up to both bank and non-bank to be able to get liquidity to finance their servicing, I guess, particularly their advances. I've spoken to senior executives at the GSEs, as recently as a couple of hours ago. They're working feverously to come up with liquidity facility for their customers at Fannie and Freddie. We should hear more about that. I hope... I told them we need to hear by today, but let's hope in the next 24 hours. There's an FAQ that the GSEs are gonna put out, that you should hopefully see later today or tomorrow, answering a lot of questions about forbearance and what does that mean? There's a ton of questions, Greg, that we can't cover in the amount of time here, but it includes everything, like, "okay, I closed a loan, "the borrowers already notified me "that they can't even make the first payment, "and I haven't sold that loan to Freddie or Fannie yet, "is it saleable?" And, I will tell you the rules are, under forbearance, that a loan in forbearance is in default, you can't sell a loan in default to the GSEs, and so technically that can't be allowed. So the question is, can there be enough pressure put on the GSEs to open up their balance sheets and actually hold those loans? And then see what happens, that's on the performance side down the road, as we come out of the virus. As I emphasized to a top executive at one of the GSEs this morning in a call, these are unprecedented times and we can't just follow the old rules. Servicers, as you know, are scared. I mean, they're called, their phones are ringing. Their borrowers notifying them that they may not be able to pay their mortgages or reading about forbearance plans, where, especially in the Ginnie Program, that they have to make advances to the MBS holders and clearly don't have that kind of liquidity. And by the way, the system was never built for an event like this. So that, you know, last thing I think I need to hear is, that shows weaknesses in non-banks and that kind of thing. The system wasn't meant for a world where we were gonna allow the entire nation to go into forbearance. So this is just the most unprecedented period of time, and these companies are working extraordinarily hard to survive. And it's affecting different companies differently. I'm not gonna mention them by name, but in the last... if you're watching the news, you're reading about some that might be in bigger trouble than others. I think particularly, non-banks with big servicing portfolios, especially if it's a big Ginnie servicing portfolio. That's where you really may find yourself in a shortfall in terms of liquidity. We're having issues on the multifamily side as well, for multifamily lenders that deal in DUS bonds from Fannie Mae and K-Deals from Freddie, but primarily, DUS bonds and Fannie stepped in and bought some DUS bonds yesterday. But I will tell you that, you know, all of this is happening in real time and I would caution that while we're overwhelmed with nervous energy and news that could sink, in its worst case, a lot of companies, we also know that this legislation was just passed. We heard about it again, on the morning news. It's not even written yet. The team is writing it. The team that's writing a lot of language we care about, is in the Senate Banking Committee and they have staff on that committee. Some used to work at the MBA when I was there. And, they get it, they understand it. So the question is, what's gonna be made available? There's a new Fed announcement about using the TALF facility for securitized MSRs that could help a couple of larger agency, primarily, non-bank servicers, especially, if they've already securitized some of their MSRs. But Greg, we have, co-issue is gone, we have no bids on MSRs, generally. We definitely have no bids on Ginnie. I was told today bids could go negative, negative is like a no bid. So we're gonna go through a period here where liquidity is going to continue to be challenged. I think for anybody who has a current pipeline, has it forward traded, TBA or committed to a cash window or to an investor. What I'm hearing is that, if it's agency or Ginnie, most investors are honoring the obligations that they agreed to. But in terms of new business and looking past your existing pipelines, that's where the questions rise. Clearly, non-agency meaning jumbos, Non-QM, I would just assume that market's gone and I wouldn't even play there if I was a lender right now. And, thinking about longterm, getting servicing bids on my business, I believe for right now, giving the uncertainty, that's gonna be far more challenging. I talked about the need for the Fed to step in. They did step in. They've now picked up their purchasing, somewhere in the 70ish billion dollars per day and we saw 30 years, come back in by close to 200 basis points by yesterday afternoon. Now, mortgage rates didn't do the same, for a lot of other reasons having to do with servicing values and investor concerns, but mortgages did come back. So these interventions can have a fairly quick impact, but, it's again, it's happening in real time and we're a true crisis both for our industry, as it relates to business.
- Well, from the perspective of loan officers and salespeople, who are seeing their companies tighten up, put overlays in, eliminate some products, what do you say to them?
- Hang in there. If you're a loan officer and you've been doing this for the last six months, you're just ending some of the best months you've ever had in your career, in terms of new pipeline. I'm not sure what your pull through rates will be on some of those mortgages. And if I was running a mortgage company, today, I might be typing up my pre-close verbal VOE. I know most companies have a 10 day pre-close verbal VOE. I'm encouraging my clients to maybe do something closer to 24 to 36 hours before, to make sure that borrower is going to be employed, particularly in harder hit sectors, where their future employment may be at risk. These aren't things people wanna hear. LOs are worried about their long term. I will just say, you know, rates are gonna come back. I think these packages are gonna do a lot to bring relief into the markets. I don't think we're gonna get unstuck from the Ginnie Mae problem, the Non-QM problem or the Jumbo problem, anytime soon. And for correspondent lenders, we're also doing co-issue transactions, have been... a lot of that stuff gonna be much more difficult. But there's product available, Freddie and Fannie is gonna be the most liquid, as we move through this. The only problem with Ginnie is, as everybody knows in the business is, in a forbearance plan, the requirement to pay to send schedule of P and I to the investor, regardless of what actually was paid to you, especially if it's extended forbearance periods, it would be an outrageous financial implication to the entire mortgage system. And we still don't know yet the details of what the forbearance plans are gonna look like. Does everybody get it? Do you have to show hardship? I mean, these are questions that we dealt with head on when I walked into this last recession in the previous administration. I think this is all in a much tighter time capsule, all happening quicker. And I think, you know, frankly, they aren't necessarily as well staffed to deal with this. It was unexpected. And, so you know, I'll have to say on the good front, I'm glad to see what the Fed has been doing. I'm glad to see the legislation passed even though the deficit impacts down the road scare the hell out of me. And I think for our industry, the cavalry's coming in, it's just a matter of, you know, will it cover the entire industry? It can't. And that's where you just focus on getting your pipeline done. Your realtors are scared, your home builders are scared. I'm encouraging lenders to do training in video calls with their clients, bringing experts in. I'm doing four in the next a week for different people around the country to just talk to the industry, because at the end of the day, Greg, I'm gonna keep going back when this is over. And maybe by Easter, maybe a lot longer than that, but whenever it's over, we have a huge demographic of people who need places to live and that demand is gonna come back. And, so how we deal with it right now is gonna be critical. How we deal with this virus is gonna be critical. And then how are you with the housing components, which is again, addressing the legislation, the Fed, FHFA along with the GSEs and HUD with Ginnie. I mean, these are all sectors of work product in the ground. I'll give you one with, sort of interesting one. So NMLS requires, for new loan officers to get fingerprints. Well, how do you do fingerprints if you're working remote and if you've been hired, can you start with a company if I can't get fresh fingerprints? I mean, so we have groups, I know the MBA is doing this. But others is, there's work products, it's going down every work stream here of issues that need to be addressed. And there's a whole army of people working on them. And again, we're gonna get a lot of solutions but we're not gonna cover... you know, this isn't going back to where we were three weeks ago, so, not for a while in any case.
- So your best guess, do you think that the servicers are gonna be made whole? Do you think there's gonna be something set up where this thing can run and servicers can be made whole in those forbearance payments, and if so, when? I mean, just your best guess, I am not gonna hold you to it obviously. You don't control all of these.
- My guess is... My short answer won't be the one you wanna hear. I don't think they'll be made whole. I think, there's going to have to be some form of haircut, applied to the servicers who get liquidity. And it all depends on what shelf they use, whether it's the top shelf, whatever the GSEs create for their customers. If Ginnie can create an advanced platform where they can make advances on behalf of their servicers, then it's gonna come down to, how long can they do it for? Is there gonna be a haircut that the servicers have to pay a portion of that or they'll get reimbursed for a percentage of that remittance that has to take place? And then will there be fees associated with that? I can tell you from what I've seen, it really depends on which solution you're using. In some cases I've seen haircuts that wouldn't be able to be covered by all of the industry. But I also see some that... some particular large non-bank players are more than willing to pay the haircut in order to get their servicing in a securitized asset and then getting capital relief. But, the ratings agencies aren't gauged here cause to get capital relief off a TALF shelf, on your servicing, you first have to get it securitized, you've got to hire an investment banker, that's gonna be expensive. And then you'll get liquidity feedback based on the rating of the tranches of your securitized MSRs. So there'll be some tranche that's triple A, but it won't be the entire strip. And so, you know, the liquidity impairments gonna be difficult. So, in the end of the day I would just say, look, we have a lot more coming at us in terms of solutions than we had 48 hours ago. That's the good news. But you know, the same calls you're all getting and Greg, that you're hearing from originators, I'm talking to CEOs across the space and the industry and everybody's trying to figure out what the options are, and, there's a lot of work going on on the hill right now to try to gain influence in terms of how the leg text, legislative text gets written on this bill? Cause that's gonna have a lot to do with, how the forbearance process works and how potential remediations can come into play.
- Well, I hear your phone ringing. We'll let you go grab that. As always, David Stevens, we really appreciate your time and you, and all the people in your group. I know there's a small army as you've told me multiple times fighting for the independent mortgage banker. So, we all of a whole community thanks you for everything, and we'll talk to you very soon.
- Sounds great, Greg. Thank you.
- All right, take care.