Forbearance buybacks could be coming

With the housing industry at large raising alarms about mortgage servicers’ desperate need for liquidity as more borrowers are requesting forbearance, the nation’s largest mortgage aggregator is now warning originators that it could force them to buy back loans that go into forbearance.
Late last week, PennyMac, which grew last year into the largest mortgage aggregator in the country, told its correspondent originators that it will not buy any loan that is currently in forbearance.
Beyond that, PennyMac also said that it may force originators to buy back a loan that goes into forbearance within 15 days of PennyMac buying it.
“Any loan in forbearance or for which forbearance has been requested is not eligible for purchase by PennyMac,” the company said in a note to originators. “Additionally, any loan that is in forbearance or for which forbearance has been requested up to 15 days post purchase by PennyMac may result in a repurchase.”
The move by PennyMac is a notable one considering its status as the largest mortgage aggregator in the country last year, according to data from Inside Mortgage Finance.
As an aggregator, PennyMac purchases loans from smaller originators, which then allows those smaller lenders to continue originating.
Per the company’s latest 10-K filing with the Securities and Exchange Commission, PennyMac purchased nearly $50 billion in loans through its correspondent channel last year. Of those, PennyMac asked for a repurchase on just over $12 million in loans.
But that could change as more borrowers are requesting forbearance due to loss of income or employment in the wake of the spread of the coronavirus.
The latest data from the Department of Labor shows that nearly 10 million people have filed for unemployment in the last few weeks, and that number is expected to continue to climb.
The massive surge in unemployment in recent weeks will likely lead to a significant number of forbearance requests, as under the CARES Act, homeowners with federally backed mortgages can request forbearance of up to 12 months.
That’s leading companies like PennyMac to take steps to protect themselves because they don’t want to be on the hook for advancing the principal and interest to investors, as they are required to do when a loan goes into forbearance.
And without clarification from the government on what will happen to servicers as loans go into forbearance, odds are that PennyMac won’t be the only aggregator to make such a move.

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