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Former Ginnie Mae chief calls for liquidity facility

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Falling forbearance rates seem like they bode well for mortgage performance, but other indicators like banks' large loan-loss reserves don't, according to former Ginnie Mae President Ted Tozer.

"The banks are expecting the economy to really not to do well over the next few months," said Tozer, a senior fellow at the Milken Institute, during a Moody's Investors Service virtual event on Monday.

"There could be a lot of work-outs if truly this economy is permanently damaged," he added.

"Delinquencies, I expect, will creep up and refinances will come down," said Ted Tozer, ex-president of Ginnie Mae.

Tozer's remarks echoed some of the points made in a recent report he co-authored with Karan Kaul, senior research associate at the Urban Institute's Housing Finance Policy Center. The report warns that coronavirus-related mortgage liquidity concerns could re-emerge if government rescue efforts and refinancing falter.

"The independent mortgage bankers are going to be left to their bank lines and other less-stable financing sources to meet their advance requirements as delinquencies, I expect, will creep up and refinances will come down," Tozer said Monday.

Servicers could run short of cash to cover their advances for borrowers' unpaid funds near year-end if the government fails to do more to sustain the economy and set up a broad liquidity facility that gives them more support than Ginnie’s existing "last resort" program does, said Tozer.

The former Ginnie chief sees a facility as a priority that's been lost in the shuffle as government officials have tried to triage the damage from the coronavirus.

"I think they're going from one fire to another, and right now they look at the servicer issue as not being a major problem," Tozer said.

But it could be in the future, he warned.

"They shouldn't be lulled to sleep by the fact that it's not a problem today," he said.

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