FT:
Fannie and Freddie could require bailout if lockdown lasts
Regulator says US mortgage guarantors have sufficient resources for about 12 weeks
Fannie Mae and Freddie Mac, the government-controlled companies that guarantee nearly half of US mortgages, could require their second bailout in just over a decade if the US economy remains in a lockdown for several months, their regulator has warned.
The two groups, which collectively underpin the $10tn US housing market, have sufficient resources to last through a lockdown of about 12 weeks, but would then need funds from Congress or the Federal Reserve, said Mark Calabria, director of the Federal Housing Finance Agency.
“If we start to go more than two or three months, then there is going to be real stress in the mortgage market, we’re talking in terms of what happened during the great recession,” he told the Financial Times.
“If we are talking about a drawn-out period where people are not in a position to pay their mortgages, if we are talking about 25 per cent of people having to ask for forbearance, the system doesn’t have that kind of liquidity. That would require Congress to step in, or the Fed.”
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Almost 10m Americans have claimed unemployment benefits in the past two weeks, and Congress passed a bill allowing homeowners to forego mortgage payments for up to a year.
About 300,000 borrowers had asked for forbearance on loans backed by Fannie and Freddie as of April 1, Mr Calabria said. Since the agencies make up more than 40 per cent of the mortgage market, he said that implied a total of perhaps 700,000 homeowners seeking forbearance.
He said that number was likely to rise: “A lot of people got paid for half of March, so a lot of people who were able to make their payments in March won’t be able to make their May payment.”