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A mortgage forbearance directive could decimate mortgage lending infrastructure if Congress and regulators don?t act fast The financial crisis of 2008 was caused by homeowners defaulting on their mortgages en mass thanks to risky loan products that were destined to fail. The bonds those mortgages were bundled into collapsed in value as a result, and it brought the entire financial system down with it.
With the stock market tanking and unemployment skyrocketing, is the economic fallout of COVID-19 about to cause history to repeat"
Earlier in March, the Federal Housing Finance Agency (FHFA), which regulates mortgage facilitators Fannie Mae and Freddie Mac, directed mortgage servicers of Fannie and Freddie mortgages to offer mortgage forbearance or reduced payments to homeowners impacted by the novel coronavirus. While a separate directive from the FHFA put a moratorium on foreclosures and evictions of homeowners whose mortgages are owned by Fannie or Freddie, the potential fallout in financial system has not yet been patched. Mortgage bonds are still dispersed to hedge funds, pension funds, and elsewhere.
What happens this time when mortgage payments stop flowing into mortgage bonds"
?I think what?s scary about it is what the last recession crisis taught us is just how intertwined so much of financial markets are,? says Patrick Boyaggi, CEO of mortgage marketplace Own Up. ?You don?t just see something like this happen and there not be a ripple e...