The federal government should consider extending a lending facility to non-bank mortgage servicers to avoid "significant disruptions" if they run short of funds in making advances on delinquent mortgages, according to the American Securitization Forum.

ASF deputy executive director Tom Deutsch told a congressional committee that the amount of advances servicers have to pay to investors in mortgage-backed securities has "risen exponentially," while the numbers of banks that help servicers finance advances has "shrunk dramatically."

If servicers cannot pay the advances, the servicing must be transferred to another mortgage servicer, which can be disruptive to borrowers and any on-going loan workouts. "Federal government provision of lending or guarantee facilities for liquidity constrained servicers" would pose "little or no risk to the taxpayer," Deutsche testified.

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