Kim Clark, AE, GAD
Mortgage Forbearance and Potential Market Crash
NAR has been keenly aware of the impact that servicing problems and early forbearance claims have had on liquidity in the mortgage market and direct impact that it has on home sales.
NAR wrote to the Federal Reserve Board, Treasury and FHFA urging their action to ease up the servicing and other liquidity issues more than four weeks ago. NAR also joined a coalition of industry partners urging the same. NAR's President Vince Malta has had regulator conversations with FHFA's director and staff have had regulator interactions with Treasury, FHFA, FHA, VA, and Congressional leaders and staff to this end.
As you noted, forbearance helps struggling owners, but creates a problem for new sales. The impact is higher lender restrictions and costs to home buyers. The issue is that Fannie Mae, Freddie Mac (the Enterprises), the VA, and the FHA were not allowed to buy loans in forbearance. So, if a new owner goes into forbearance after getting a mortgage but before that lender can sell the mortgage to Fannie Mae, Freddie Mac (the Enterprises), the VA, or the FHA, that loan is no longer eligible to be sold to the Enterprises or FHA. The lender is then stuck with the loan. To prevent that, originators are putting significant restrictions on new borrowers.
As noted above, this issue is one of the issues that NAR has been working with the regulators and the Hill.
The VA recently announced that it WILL buy loans in forbearance, so long as they meet all other standards. Furthermore, they will not charge an extra fee.
President Vince Malta pressed FHFA Commissioner Brian Montgomery on this point just this past Thursday afternoon. The Commissioner indicated that the FHA is aware of the issue and hopes to have something to share with the industry in the not too distant future.
Finally, the FHFA, the regulator of Fannie Mae and Freddie Mac, announced roughly a week ago that it would change its policy and start buying loans in forbearance. The problem is that it instructed Fannie and Freddie to charge a steep fee of 5% for first time buyers and 7% for repeat buyers. That is the equivalent of a fee of $10,000 and $14,000 to the lender, which will of course be passed to the consumer. Even if those fees are financed into the rate, that is 1%-1.4% added to the rate…easily enough to kill a deal.
The FHFA's change is unlikely to reduce lender restriction and it will exacerbate affordability issues. NAR staff have reached out to Congress on this issue, alerting them to the issue and calling for action. NAR is also working with industry partners to solve this issue.
While a call to action is a potent tool, it's one that should not be over used, especially if there are other options. This pandemic will pose many challenges to the real estate industry. NAR will use all of its advocacy tools to resolve those issues as they arise and in an appropriate manor. If those options fail, NAR will call on its most potent weapon…you NAR's members.
Thank you again.
National Assn of REALTORS