GSEs

Mortgage bankers are sounding alarms that the Federal Reserve's emergency purchases of bonds tied to home loans are unintentionally putting their industry at risk by triggering a flood of margin calls on hedges lenders have entered into to protect themselves from losses.

The impending wave of loan delinquencies because of the coronavirus hurt private mortgage insurer earnings, but the companies will still have sufficient capital, a Keefe, Bruyette & Woods report said.

The government is cushioning the impact of the coronavirus on consumers, but independent mortgage bankers need funding to deal with increased levels of servicing advances because of forbearances.

Treasury Secretary Steven Mnuchin reiterated Thursday that he wants U.S. financial markets to remain open even as the coronavirus fuels wild volatility, while adding that he's focused on helping mortgage firms expected to be hit hard by the pandemic’s spreading economic pain.

The Federal Reserve Board should create a dedicated facility for mortgage servicers to access in order to make required advances, industry participants and observers, including its largest trade group, said.

The Federal Housing Finance Agency authorized the government-sponsored enterprises to lend additional support to the mortgage-backed securities market and temporarily allow some flexibility in lending requirements to address coronavirus-related concerns.

Mark Calabria said Fannie Mae and Freddie Mac are currently equipped to handle elevated delinquencies, but they might need congressional or Federal Reserve help if fallout from the coronavirus persists.

A number of proposals have been floated for debt payment holidays and other types of moratoria, but such approaches offer solutions that are worse than the problems.

A proposal to tighten financial requirements for government-sponsored enterprise counterparties that sought to lower risk in a volatile market should be suspended, a group representing smaller lenders said, arguing it would aggravate current distress.

Add continued growth in commercial and multifamily mortgage debt outstanding to the list of things that the economic fallout from the coronavirus might affect.