MBA Fears Katrina-Related Liquidity Crisis

The nation's largest mortgage trade group has asked Congress for assistance in dealing with a possible liquidity crisis for lenders brought on by Hurricane Katrina-related damage.In prepared testimony before Congress on Thursday, the Mortgage Bankers Association said that in regard to Katrina, "The most immediate need of mortgage companies is liquidity." Testifying for the MBA, IndyMac Bank senior vice president J.K. Huey applauded Freddie Mac for allowing servicers to suspend interest payments on loans affected by Katrina, while expressing her desire that other "holders, guarantors, or owners of mortgage loans will follow with similar policies." The trade group estimates that almost $7 billion in government-insured loans are in the Katrina disaster area. It wants Ginnie Mae to continue making payments on loans it has guaranteed there, but without declaring an affected issuer in technical default. "Such a determination of default creates a sizable business hardship for any financial institution," Ms. Huey said in her prepared testimony.