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.”
Hi Folks, I’m a ma and pa landlord with some 8 mortgages plus our personal residence. I read this piece in hopes of some in depth digging into how the market really works vs how most folks thinks it works and i was disappointed.
This is how things work per my own personal education into the bigger picture.
– Forbearance is wildly (WILDLY) misunderstood as being useful. The servicer is not empowered to slide the loan payments down the road, skip a few payments, then pick up as if that time span was invisible. NOPE. The amort schedule continues ticking all forebearance does is accrue unpaid payments into a bucket that comes due in A LUMP SUM plus the current month when yiour period is up. What the heck?? Thats no solution except to create an in-default scenario post forbearance, right? Please defend forbearance as anything but a dangerous trap? That lump sum is the trap clamping shut.
I predict 90% (pick some high number) will go into default post forbearance. Not only due to the in ability to pay that 4 month lump sum (3 mo forbearance + current monthy) BUT including their income will not spring back like a few (like that Gov paid off ex Gold man CEO) claim this is a V bottom and the economy’s jig saw puzzle will go back together quickly and as robust as it was in Jan?? LOL that is a lot of cool-aid to swallow!
– True though, I do agree, that this time banks will not want to actually foreclose quickly. They will be slow. So that much I agree. But the in default status percent I believe will jump and ramp up.
– Distressed sales pushing down comp prices… No one is talking about the young folks who bought a modest home on blue collar jobs, FHA/VA and owning less then 5 yrs. They have zero equity, least not enough to cover agent commissions and closing costs and perhaps paying themselvs back for the needed fixup. There will be ALOT of these sellers who lost their jobs, or have much reduced income who can’t afford to keep their house and choose to try to sell. But are trapped due to not enough equity. Long days on market taints the market for all and those middle class areas will suffer with inventory at a high listing price and can’t come down due to a high (still) balance on their mortgage. This is the precursor to the jingle keys scenario of 2010+. Walk-a-ways. What else can a section of the market do with no equity to sell?
– as a small landlord you are right I can’t afford to “forgive” rent!!! We are doing month by month rent deferrals on an as asked for basis. Documenting the reduced rent and arrears and accumulating the arrears for each month tenants can’t pay the full rent. Then the plan is to create a payment plan $100 extra per month or what ever they can afford. We’ve been around long enough, have had enough prior uncollectable arears to buy a very nice brand new car for that uncollectable cash, to know we will never see any of the arrears !!! Blue collar tenants didn’t have much of a safty margin before this per month. They will be creating power and water bill arrears etc and ETC, they will have such a deep hole to pay back our rent arrears will never get much if anything.
I’m not that surprised that local Govs, Academics, pundits and even some CEOs just don’t know how things _really_ work and make these glossing over reality statements! At least these guys didn’t say landlords will be ok if Gov forces a rent moratorium like some anti-business locale’s have done!! In those areas my prediction is; in 12-24 mo those screwed landlords will sell out to retail buyers dramatically dropping the rental inventory, same for rent controled areas. Stats show San Fransico has fewer rentals today then 17 yr ago prior to rent controls. ;(
No I disagree in general with these Harvard authors. I do agree that come Aug we will not see a jump in foreclosures, but we will see a wave of distressed attempted sales that will blight the market. In time some of these owners will be a new wave of walk-a-ways, some others the bank will file NOD/foreclosure especially in non-judicial states where its cheap and fast to do so. I agree that the banks learned they don’t want to eagerly take back houses if they can avoid it. This is all in the to be seen category and folks claiming some rosie out come need to be more humble and just say nothing.
Unless its per terms of their (these and other authors) Gov handout to put out these Rosie pieces, then its ok because that is entriprenuralism. Paid for, directed outcome publishing a well understood business model. 🙂Report