KBW sees mortgage payment moratorium neutral to agency MBS investors

• Keefe Bruyette & Woods analyst Bose George suggests a mortgage payment moratorium to deal with a potentially massive spike in delinquencies as workers lose jobs and fall behind on mortgage payments as a result of the spread of Covid-19.
• It should be open to anyone who attests to having been negatively affected by the virus.
• For the mortgage industry, the major logistical challenge is that mortgage servicers will have to keep advancing principal and interest to bondholders. A solution to that could be a funding facility from the Fed, which would be "essentially an interest-free loan from the Fed to borrowers," George writes.
• Sees such a plan as neutral to agency MBS investors, including mortgage REITs, "since servicers would be advancing P&I, resulting no change in cash flow to investors."
• Sees mortgage insurers benefiting from such a program as the Federal Housing Finance Agency should treat the coronavirus  crisis like other natural disasters.
• Missed payments would be added to the back end of the loan, making it the same 30-year pay schedule, but for 366 months after skipping months 121-126, for example, he wrote.
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