Fears Statement on COVID & Mortgage Lending

Ken Fears, NAR’s Senior Policy Representative for Banks, Lending, and Housing Finance, released this statement about the federal regulator’s work related to the current Covid-19 situation and mortgage lending:

“We just wanted to update you all on some moves made by the regulators, the administration, and Congress in regard to the coronavirus (COVID-19) as well as some useful information.

There are several avenues of concern from the real estate perspective. First, demand for housing could take a hit due to the stock decline eroding down payments and concern about a buyer’s future employment. Furthermore, social distancing practices could weigh on the ability to transact. Second, sellers may have the same concern about impacts to their purchase. Third, current owners could be hurt if their incomes are impaired resulting in more delinquencies and potential more inventory coming to the market. Fourth, wage declines from the distancing and economic decline could affect renters’ income and landlords in turn. If landlords are hurt, that inventory could come to the market. Finally, the effects above are due to social distancing, but actual illnesses could compound the decline in demand/supply and it could have a disproportionate on our membership which tends to be older.

Currently, we are hearing that lenders are overwhelmed from the volume of refinances due to rate declines. As a result they are rationing mortgage credit to higher credit borrowers and increase rates over what they should be (e.g. the spread to the 10-year Treasury is much wider than it normally is). The concern here is that higher rates than a week or two ago may scuttle some purchases and some lower credit borrowers in particular.

The regulators have responded. The FHFA directed the GSEs to instruct their mortgage servicers to extend forbearance for 6 months and an additional 6 months if needed after which they can request extensions from the GSEs. The bank regulators (e.g. FDIC, OCC, and Fed) have given similar guidance to lenders and bank servicers. As the president declares different levels of disaster, additional actions by the GSEs, HUD and bank regulators will occur as they gain discretionary powers.

The administration and Congress are working together on a stimulus package aimed at expanding the medical response, student debt interest forbearance, potential broad mortgage forbearance/forgiveness, and longer-term economic stimulus. Congress has extended rather than going to recess and plans to work until they have a package.

MBA and PWC have both put up website with resources on how transactions are affecting lenders and how they should respond.

You all are part of our eyes and ears. Please let us know what you are seeing.”

As we receive further updates, we will pass those along.