As Forbearance Protections End, Nonbank Mortgage Lenders Face High-Volume Processing Tests, Ginnie Mae Risks
Tech-savvy millennials fled to the suburbs during the coronavirus pandemic, fueling a hot housing market that enabled nonbank and fintech mortgage companies to grab a big piece of the growing market share, churning out loans at a faster pace than more traditional bank lenders, according to a Morning Consult report. That booming market has so far shielded a vulnerability. Homeowners had multiple options to buoy their finances, from refinancing opportunities to extra unemployment insurance and stimulus checks. As those programs come to a close this year, most homeowners that took advantage of coronavirus-era policies to delay their loans have now exited forbearance, staving off a widespread, 2008-style foreclosure crisis that many feared at the start of the pandemic. But for a portion of borrowers — largely Black, Hispanic and first-time homeowners — the end of housing programs could pose significant difficulties. The issue has to do with nonbank servicers that have never dealt with the number of loan modification requests and foreclosures that policymakers expect, and who aren’t required, like banks, to hold capital in reserve to offset the costs. These servicers, which handle the day-to-day managing of a mortgage, including foreclosures, have aggressively taken market share since the Great Recession and the regulation of bank mortgage lending that followed. Mortgage-servicers and other industry-watchers were on alert for these issues early in the pandemic, even unsuccessfully lobbying the Federal Reserve for a liquidity facility for nonbank mortgage-servicers. And though a widespread liquidity crisis reminiscent of the 2008 crisis now appears unlikely, experts are worried about logistical challenges with everything from high-touch transactions like loan modifications or foreclosures to a lack of infrastructure to service loans in foreclosure. [as reported in American Bankruptcy Institute 7/15/21 enewsletter]