A report from the Wall Street Journal. "Ann Winn called her mortgage company to see about pausing payments in late March, soon after she had to shut down the salon she owns in a suburb of Austin, Texas. What followed, she said, were hours of tense calls and emails with Freedom Mortgage Corp. The company agreed to let her skip a few payments—but only if she would repay them all in a lump sum this summer. Ms. Winn didn’t know when she would be back at work, so she declined. 'I’m just not going to pay my other bills,' she said, 'because I don’t want to lose my home.'"

"Ms. Winn and her husband bought their Leander, Texas, home in 2014 using the FHA loan program, which is meant for first-time and modest-income buyers."

"The virus has forced millions of homeowners to suddenly stop making payments. At the same time, many mortgage companies aren’t built to handle an economic collapse or help their customers through it. Many of them are nonbanks that don’t have deposits or other business lines to cushion them, and they have raised concerns that fronting payments for struggling borrowers such as Ms. Winn will quickly drain them of capital."

"Years ago, the financial crisis revealed the folly of churning out 'liar loans.' Regulators cracked down, and mortgages made today are generally more conservative. What regulators didn’t focus on was the strength of the mortgage companies themselves. Though the loans are sturdier, the infrastructure largely didn’t change."

"Nonbanks made 59% of U.S. mortgages last year, the highest level on record, according to industry-research group Inside Mortgage Finance. They also made a large proportion of U.S. mortgages before 2008 but many went bust when the crisis hit. Many nonbanks, like United Wholesale Mortgage and loanDepot.com LLC, are barely known outside the industry but dominant inside it. Quicken Loans Inc., one of the few with wide name recognition, ranked as the largest mortgage lender by originations for the first time this year, elbowing out Wells Fargo and JPMorgan Chase & Co."

"Nonbanks also have expanded in the crucial business of servicing mortgages. They now service roughly half of them, five times their share from a decade ago, according to the Urban Institute. In good times, that task involves collecting payments from borrowers and handing them to investors that own the loans, plus handling odds and ends such as taxes. In exchange, the servicer gets a slice of the interest. In bad times, servicers are supposed to create new payment plans for struggling borrowers, which takes much more work and expense. When all else fails, servicers initiate foreclosures."

"For years after the crisis, regulators, mortgage executives and consumer advocates discussed how to improve this market. They floated ideas about changing the way servicers are paid so they collect a bigger fee when a loan becomes delinquent. They also considered having the servicers fund a central utility to handle defaulted mortgages. But those ideas never gained much traction, according to people involved."

"'There was a big focus on the consumer experience,' said Michael Bright, the former head of government mortgage corporation Ginnie Mae, which backs Federal Housing Administration loans. 'But there wasn’t much focus on the quality of a servicer.'"

"The structure of the U.S. mortgage market is much the same as it was before the crisis. Pools of mortgages are packaged and sold to investors around the world. When a borrower stops paying, servicers are caught in the middle, forced to front payments to the investor, even though they aren’t receiving money from the borrower. The servicer will eventually get reimbursed if the mortgage is one of the roughly two-thirds guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. But that is a slow process and in some cases can take years."

"Lawmakers recently outlined how struggling borrowers can request so-called forbearance plans, by which they pause their monthly payments. If the mortgage is government-backed, then companies are generally supposed to grant the request. That has thrust both banks and nonbanks into the position of cushioning the blow for their customers. Nonbanks, which depend on short-term bank loans to fund their daily operations, are struggling to do so."

"About 7.5% of borrowers had obtained forbearances as of April 26, according to a survey by the Mortgage Bankers Association, or MBA. That means about 3.8 million homeowners are skipping their monthly payments with permission. If forbearance rates reach the mid-to-high teens, few servicers are expected to have the cash to meet their advance obligations, according to Warren Kornfeld, who covers nonbank mortgage companies at Moody’s Investors Service. As a result, many are now trying to gain access to additional cash."

"Mortgage servicers, both banks and nonbanks, were on the hook for about $4.5 billion a month in servicing advances on government-backed loans because of forbearances as of Thursday. That is roughly 25 times more than they were on the hook for at the end of February, according to Black Knight Inc., a mortgage-data and technology firm. The health of nonbanks ultimately depends on keeping their funding. Worried about the surge in borrowers seeking relief, some banks have recently curtailed this lending."

"Mortgage companies, both banks and nonbanks, are also pulling back on some lending to borrowers. Credit availability in April fell to its lowest since 2014, according to the MBA. Lenders are cutting back in particular for borrowers with lower credit scores, according to the Urban Institute. But the contraction in credit is spreading to all types of loans—from jumbo mortgages to cash-out refinances."

"Beverly Harris was in the process of buying a home in the Palm Springs, Calif., area in March when the type of unconventional loan she had been pre-approved for suddenly became unavailable. The retiree, who has a high credit score and was planning to put 20% down, was expecting to use a loan that qualifies the borrower based on assets rather than income. She estimates she checked with 15 different mortgage companies and banks. All of them had stopped making those types of loans. For now, Ms. Harris is staying put in her rental."