How the Mortgage Industry’s Cash Crisis May Hurt Borrowers

The recently passed Cares Act includes a provision that allows homeowners to stop paying mortgages for up to a year, and with unemployment claims at an all-time high, people are rushing to get their loan payments delayed. Although this is great for those who would otherwise have to foreclose on a home, servicers are starting to feel the strain as there is no provision to assist them, and they must continue to make payments to investors while loans are deferred. Many lenders are now asking Congress to step in and create some sort of financial plan to help lenders in this time, as eventually these challenges will not just hurt lenders, but borrowers as well as their loans could be transferred to other servicers—or it may become increasingly hard to secure a loan altogether. 

The federal government’s rush to support homeowners in the wake of the coronavirus pandemic should help many Americans avoid foreclosure, but it could have negative consequences for the mortgage industry.

Whether the government steps in to assist the industry could determine whether mortgage companies stay in business — and whether borrowers face even more financial difficulties.

The $2.2 trillion CARES Act stimulus bill that President Donald Trump signed into law last month included a provision guaranteeing that any homeowner with a federally-backed mortgage could stop making mortgage payments for up to a year if they face financial hardship because of the COVID-19 outbreak.

Read More