April 1st, 2020 10:49 AM by Jackie A. Graves
The coronavirus pandemic is radically reshaping the economy with
business closures and job losses. But what about the housing market and
mortgages? Is now the time to finance or refinance?
To get some answers Bankrate spoke with David H. Stevens, one of
the nation’s leading mortgage authorities. Stevens is the former CEO of the
Mortgage Bankers Association (MBA) and was the Federal Housing Commissioner
under President Obama. He is the CEO of Mountain Lake Consulting, Inc., a
financial services consulting firm focused on the real estate finance sector.
The interview which follows has been edited for length and
Stevens: Right now, short term, may not be the best time to get a
mortgage. The issues stemming from the virus have impacted the economy in a
variety of ways, but one of the harder-hit sectors is the mortgage market.
Mortgage-backed securities prices have fallen in the past two
weeks and rates are higher than they might be in the weeks to come should things
begin to settle down. That being said, if you are buying a home this could be
an opportune time before the housing market comes back, and while mortgage
rates are a little higher than they were, they are still near their record lows
Stevens: Fortunately, the industry is far more automated than in
previous times. Almost all of the lending process can be done online. From the
application which is almost certainly online for any lender, to being able to
scan and email key support documents needed to approve the mortgage, the vast
majority of the work can be done without the need for face-to-face contact.
Freddie Mac and Fannie Mae also have property
inspection waivers that they offer on a significant percentage of refinance
loans and are committed to expanding the use of alternatives to physical
on-site appraisal requirements. Depending on the lender and the state where the
property is located, the use of e-signatures and other remote signatures may
allow you to skip the closing altogether and simply do the process virtually.
Stevens: The National Association of Realtors reported that
February’s existing home price increase marked the 96th straight month of
While the coronavirus is a significant event and one that is
adversely impacting both the health of the nation and also the economy, the
long-term reality of demographics and housing supply won’t change.
As we look forward to getting past the curve and a return to
work and school we will return to a nation that is creating 12 to 14 million
new households over the next decade, according to the Harvard Joint Center for
Housing Studies. This suggests a significant shortage in available inventory. So,
while the economic recovery resulting from the virus may slow things down for
the short term, the long-term prospect for home price gains remains optimistic.
Stevens: In the short run the impacts of the virus are affecting a
variety of components that make a mortgage rate. Mortgage-backed securities are
out of balance, causing rates to rise, servicing valuations are declining, and
investors that participate in this arena are trying to determine what this
might mean for default rates and more.
That being said, the Federal Reserve
announced a significant increase in their participation in the
market, which will help remove some of this imbalance. I expect rates to once
again start coming down as we move beyond this period. The fundamentals for
lower rates are good, the technical conditions are shorter term and making
rates rise, but this too should pass.
Looking out over the next month, it comes down to the timing and
impact of the legislative efforts and actions by the federal agencies and that
is still not entirely clear.
Stevens: This all depends on the duration of this period and the
impact from the legislative and regulatory efforts being considered right now.
Keep in mind that while most Americans are being told to work
from home, there are millions working remotely. We are seeing growth in select
service industries with companies like Amazon, Insta-Cart, UPS, and more trying
to hire thousands of workers.
Workers employed in travel, events, small retail, and
restaurants are among those that may face the biggest impact. A significant
portion of these employees may not own homes.
So, while there will be a default spike from this, how it will
penetrate home values is still a question. More importantly, forbearance plans
and foreclosure enforcement stoppages have been announced which will hopefully help cushion the
impact, especially as these plans are targeting support for renters as well as
homeowners. This all comes down to how long this lasts and whether we can
flatten the curve of the virus so that America can return to work sooner.
Stevens: Servicers are the companies that collect monthly payments
for mortgage investors. They are also the companies that deal with late
payments, non-payments and foreclosures on behalf of the investors.
This is a huge issue. Servicers reserve funds for “expected
default” and even hold a reserve above that. But when an entire nation is told
to go home and these forbearance programs and foreclosure moratoriums are put
in place, the cumulative burden falls on servicers. If a borrower does not pay
his or her loan, yet the servicer must still pay the holder of the mortgage
security, that cash has to come from these reserves.
If the payments stop coming from a huge percentage of your
customers, like one-fourth, one-fifth, or more of borrowers, the entire system
could collapse. This is why there has been so much effort to create a liquidity
platform at the Federal Reserve, at Ginnie Mae (the Government National
Mortgage Association or GNMA), and with the GSEs (Government-sponsored
Enterprises such as Fannie Mae and Freddie Mac) to fill in the gap and insure
that servicer can function.
A proposal has been sent to Fed Reserve Chairman Jerome Powell
and Treasury Secretary Steven Mnuchin to address this need and legislation is
also being introduced in Congress. It is supported by the key industry groups
as well as some key consumer advocates. It is an absolutely critical need to
create this liquidity platform.
Source: To view the original article click here