Foreclosure crisis isn’t on horizon as pandemic roils mortgage industry: Harvard Center
By David Pendered
A surge of foreclosed homes isn’t on the horizon because of the pandemic, but the fate of renters is less than certain because they’re harder for the government to protect, according to a comments in a forum sponsored Tuesday evening by the Joint Center for Housing Studies of Harvard University.
Borrowers will benefit from a set of tools that have come into use as the nation’s mortgage industry has been restructured since the Great Recession, which ended in 2009, according to comments made during the hour-long talk: The Housing Finance System During the Pandemic and Beyond.
The forum was conducted on a livestream platform and already is available for viewing.
These tools include mortgage forbearance, which has already been called into play by the nation’s largest home lender. A 12-month payment forbearance on borrowers impacted by the coronavirus was announced in March by Fannie Mae and Freddie Mac. More than $6.3 trillion in funding for the U.S. mortgage markets is provided by these two enterprises, plus the nation’s 11 Federal Home Loan Banks, according to a report by the Federal Housing Finance Agency.
Mortgage forbearance enables borrowers to seek short-term relief from their lender. The tool is specifically intended to help borrowers who run into unexpected financial calamities – such as the loss of income related to a pandemic that has shuttered much of the economy in the United States and around the world.
“In 2008, lenders didn’t know how to handle stress [in the market], so they foreclosed,” said Don Layton a former CEO of Freddie Mac who’s now a senior industry fellow at the center. Layton and the center’s director, Chris Herbert, participated in the forum.
Renters are not protected by mortgage forbearance and other such tools for one simple reason – renters don’t have a relation with the mortgage lenders.
For instance, the government could seek to shelter renters from eviction by offering mortgage forbearance to the borrower. However, the government has no way to compel the borrower to offer any relief to a renter who may be struggling financially because of the pandemic’s impact.
“With renters, owners are in the way,” Layton said.
The forum was part of the ongoing effort by Harvard’s housing center to provide real-time analysis of issues related to the nation’s housing market. Another example is a report issued Monday that was written by Whitney Airgood-Obrycki, a research associate affiliated with the center.
This report appears to offers a counterpoint to the wait-and-see aspects voiced by Layton and Herbert. Airgood-Obrycki went straight to the heart of data that shows how the sector of folks who live paycheck-to-paycheck face grim prospects because of the pandemic-caused economic turmoil.
Snippets from her report, Pandemic Will Worsen Housing Affordability for Service, Retail and Transportation Workers, include:
- “This recession will undeniably be different from past recessions. Initial unemployment claims reached a new historical high of nearly 3.3 million for the week of March 15 to March 21. This marked an over 1,000 percent increase from the week before and eclipsed the previous high of 695,000 from 1982. The quick and early uptick in unemployment filings illustrates how different this recession is. …
- “While it is difficult to know what a COVID-19 recession will mean for housing markets, the ongoing affordability crisis will only worsen in coming months. The federal government announced a temporary moratorium on public housing evictions and foreclosures of mortgages backed by Fannie Mae, Freddie Mac, and the Federal Housing Administration. State and local governments are similarly implementing eviction protections for renters, though these delay but do not forgive rent payments. While these measures are a needed stopgap to help households with reduced incomes now, continued efforts and assistance will be necessary to ensure that those who do lose major sources of income will still be able to afford housing.”