Mortgage Industry Adapts to COVID-19
Written By: Joel Palmer, Op-Ed Writer
Several recent reports show that the mortgage industry started the year strong before the COVID-19 pandemic slammed on the brakes.
According to monthly mortgage performance data from Black Knight Inc., national foreclosure and 90-day delinquency rates set record lows in March.
In addition, Fannie Mae reported expectations that residential fixed investment rose by the largest annualized amount since 2012 in the first quarter.
But the early days of lockdowns and shutdowns in March started to have a negative effect on the market. And signs indicate the impact will likely last for the rest of the year.
Black Knight’s data showed that overall delinquencies rose 3.33 percent from the month before, the first March increase since the turn of the century.
Due to moratoriums on foreclosures related to COVID-19, foreclosure starts fell to their lowest monthly level at just 27,600 for the month.
Fannie expected a sharp decline in total home sales and housing starts in the second quarter and all of 2020. It has revised downward its previous forecast for 2020 purchase mortgage originations by nearly $300 billion.
“Between declining purchase mortgage applications, falling new single-family for-sale home listings, and waning consumer confidence, it is evident that people are holding off on purchasing and selling homes in light of the major uncertainties surrounding the effects of the virus and the outlook for the economy,” read Fannie’s latest Economic and Housing Outlook report.
Last week, the Federal Housing Finance Agency (FHFA) approved the ability of Fannie Mae and Freddie Mac to purchase single-family mortgages in forbearance, provided they meet other eligibility requirements.
Loans in forbearance are typically ineligible for delivery under GSE requirements. According to Black Knight, overall mortgages in forbearance have tripled during the month of April. As of April 23, more than 6 percent of all loans were in forbearance, representing 3.4 million homeowners and $754 billion in unpaid principal.
Fannie said some borrowers have sought payment forbearance shortly after closing on their single-family loan and before the lender could deliver the loans to the GSEs.
“Purchases of these previously ineligible loans will help provide liquidity to mortgage markets and allow originators to keep lending,” said FHFA Director Mark Calabria.
Fannie added that eligible loans will be priced to mitigate the heightened risk of loss to Fannie and Freddie from these loans.
FHFA also announced last week a four-month advance obligation limit for loans in forbearance. Once a servicer has advanced four months of missed payments on a loan, it will have no further obligation to advance scheduled payments. This applies to all enterprise servicers regardless of type or size.
Black Knight reported that mortgage servicers are bound to advance $2.8 billion of principal and interest payments per month to holders of government-backed securities on COVID-19-related forbearances. Another $1.3 billion per month in lost funds is faced by those with portfolio-held or privately securitized mortgages.
The news isn’t all bad for mortgage processors and underwriters. Low mortgage rates are expected to continue for the year. This will support refinance volumes, which Fannie revised upward from last month’s forecast by around $240 billion. Overall, Fannie said 2020 originations should rise to $2.5 trillion with a refinance share of 56 percent.
Also due to record-low mortgage rates, prepayment activity jumped by nearly 40 percent in March.
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
