With a wave of U.S. mortgage borrowers expected to seek reprieves from monthly payments, regulators are bracing for the reality that they may have to take a harder line in specifying who qualifies for relief.

The likely surge in coronavirus-fueled forbearance requests has been exacerbated by the $2.2 trillion stimulus measure that Congress passed last week. The legislation stipulated that homeowners hurt by the pandemic’s devastating impact on the economy could delay payments for months.

But lawmakers put few burdens on borrowers, forbidding mortgage servicers from demanding documented proof of hardship. Instead, consumers would just have to attest that they’re struggling.

Widespread Abuses?
In anticipation that there could be confusion, fights and even widespread abuses as borrowers withhold payments, agencies are seeking to clarify that the break is only for those who really need it. Officials at the Federal Housing Finance Agency and Department of Housing and Urban Development are among those discussing whether to issue guidance on who’s eligible, people familiar with the matter said.

The regulators could take other steps to make clear that pain must be legitimate, such as requiring evidence that borrowers have actually lost their jobs, said the people, who requested anonymity because the discussions are private. Government watchdogs want to see how many consumers seek forbearance before taking more aggressive steps to clarify who can apply, the people said.

FHFA spokesman Raphael Williams said the agency interprets the stimulus legislation as requiring that consumers have to have lost jobs or income to qualify for forbearance.

Mortgage relief is “for those who do not have the means to make payments due to economic hardship caused by COVID-19,” HUD Director Ben Carson said in an emailed statement. “If people are in a situation where they can pay their mortgage or rent on time, they should do so,” he said.

Delinquency Wave
About 300,000 borrowers whose mortgages are backed by Fannie Mae and Freddie Mac have requested forbearance as of April 1, according to the FHFA.

It’s expected to become clearer in the coming weeks just how bad the problem will get, as bills become past due. Mortgage lenders are already preparing for the biggest wave of delinquencies in history after a record 10 million people applied for unemployment benefits over the past two weeks. It’s also not clear how long the crisis will last.

As many as 30% of Americans with home loans – about 15 million households –- could stop paying if the U.S. economy remains closed through the summer or beyond, according to an estimate by Mark Zandi, chief economist for Moody’s Analytics.

Nonbank Pain
Nonbanks that service mortgages would likely be hit hard because they’re still obligated to distribute monthly payments to investors in bonds tied to home loans even if borrowers stop paying. As a result, servicers are bracing for a liquidity shortfall.

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