Cash crunch fears are easing for Detroit-based mortgage giant Quicken Loans and other companies that collect monthly payments from home mortgage borrowers, a growing number of whom are missing or postponing payments amid the coronavirus crisis.

In a development that was widely cheered in the mortgage industry, the Federal Housing Finance Agency said Tuesday that it would require companies like Quicken that "service" mortgages to advance no more than four months of missed payments to borrowers.

Previously, these mortgage servicers were potentially on the hook for up to a year of missed payments from borrowers with federally backed Fannie Mae mortgages who signed up for forbearance programs. (Freddie Mac mortgages, also subject to this week's announcement, already had a four-month cap on liability for the mortgage servicing companies.)

The Mortgage Bankers Association had warned that if the pandemic's economic damage worsens and one-quarter of mortgage borrowers stop making payments or enter forbearance for six months or more, mortgage servicing companies could have been liable in the short term for fronting $75 billion to $100 billion or more.

Such a scenario could result in devastating cash crunches at many mortgage servicing companies.

"This news reduces servicers' worst-case cash flow demands considerably," association President and CEO Robert Broeksmit said in a statement about Tuesday's announcement.

Servicers such as Quicken collect borrower payments, then pass them on to the investors who own the mortgages. Servicers are still responsible for making payments if borrowers are granted a forbearance — temporary suspension of their mortgage payments.

The servicers are eventually reimbursed for those advanced payments by the federally backed entities that guarantee mortgages, but there is a timing mismatch that can lead to a liquidity crisis.

The $2.2 trillion CARES Act disaster relief package allows homeowners with federally backed mortgages to obtain forbearances for up to a year.

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As of Monday, nearly 6% of all mortgages nationwide — about 3 million borrowers — were in forbearance, according to the Mortgage Bankers Association.

Quicken Loans is best known for originating mortgages and is the nation's top direct-to-consumer lender, although the downtown Detroit company, classified as a non-bank lender, greatly expanded its mortgage servicing business in the 2010s as some traditional banks exited the business.

Quicken was ranked as the nation's No. 9 mortgage servicing company last year by industry observer Inside Mortgage Finance. What percentage of the company's business is servicing mortgages was unavailable Wednesday.

Quicken did not respond to a request for comment.

"Quicken is somewhat unusual among major non-bank servicers in that they are the largest and probably best heeled financially of a nonbank, and they also are one of the few that has grown to be a significant servicer organically through originations — as opposed to buying servicing” rights, said Guy Cecala, CEO and publisher of Inside Mortgage Finance.

“Generally speaking, Quicken is considered to be the non-bank in the best position to weather anything like this," he added.

Pontiac-based United Shore, another major player in the mortgage industry, was last ranked as the No. 29 mortgage servicer. The company has pledged to not lay off any of its 5,800 employees during the pandemic and economic downturn.

In a phone interview Wednesday, United Shore CEO Mat Ishbia said his company always had sufficient liquidity to manage the mortgage servicing situation, although the new four-month cap for payments is still a welcome move.

“This is also good because it will help keep mortgage rates low," Ishbia said, "because if people don't think the government will intervene, they may not want to do mortgages."

Still, the four-month cap isn't the industry's preferred solution. Among other things, it still leaves servicers responsible for advancing payments for unpaid property taxes, homeowners insurance and mortgage insurance.

The mortgage industry's desired solution is for the U.S. Treasury and Federal Reserve to set up a 'liquidity facility," or a big pot of money to borrow from to make the payments that homeowners skip. There has been resistance in Washington to setting up such a fund to help the non-bank mortgage servicers, according to media reports.

Cecala said that such a move shouldn't be seen as a "bailout" because a liquidity fund would in theory have little to no cost to the government.

"These are not loans to keep non-banks or finance companies afloat," he said. "It’s to help their short-term liquidity in order to provide mortgage relief, which benefits everybody."

Ginnie Mae, which backs FHA and veterans mortgages, last week announced its own "temporary liquidity shortfall" program to help mortgage services with borrowers' missed payments.

ContactJC Reindl at313-222-6631 or jcreindl@freepress.com. Follow him on Twitter @jcreindl. Read more on business and sign up for our business newsletter.