As the economy braces for the headwinds from the COVID-19 outbreak the financial sector, as well as the government, is responding by providing substantial support in an attempt to stabilize the market. While there will almost definitely be fewer sales than anticipated this year before COVID-19, Realtor.com Chief Economist Danielle Hale said This Week in Real Estate that “folks expecting price declines to happen as they did during the last recession are going to be disappointed.” Below are a few highlights from the fourth week of March that influence our business:
Fannie Mae, Freddie Mac to Roll Out New Mortgage-Payment Deferral Option for Homeowners Facing Financial Trouble. Homeowners who fall behind on their mortgage payments will soon have the ability to defer payments through a new service being offered by Fannie Mae and Freddie. At the direction of the Federal Housing Finance Agency, the two mortgage companies are rolling out payment deferrals, which will serve as an alternative to forbearance and loan modifications for borrowers who are struggling to remain current on their home loans. Fannie Mae and Freddie Mac accounted for upward of 46% of all mortgages originated as of 2018, according to a report from the Urban Institute.
Borrowers who are granted a payment deferral will see their delinquent principal and interest payments deferred. That balance will come due either on the mortgage maturity date, the pay-off date or upon the sale of the property, whichever comes first. The term of the loan and payment schedule will remain the same. Fannie Mae described payment deferrals as “a more affordable workout that’s between a repayment plan and a modification” and noted that the option may be well suited to borrowers whose ability to make on-time payments was impacted by the national coronavirus emergency. To qualify, borrowers must have encountered a financial hardship that has been resolved, and they must have the capacity to make existing monthly mortgage payments based on their contract and not require a payment reduction, unlike a loan modification or forbearance. Additionally, the mortgage must have been originated at least 12 months prior to the evaluation date. Borrowers must be between 30 and 60 days delinquent and have not received a previous deferral nor failed a non-disaster related loan modification.
Mortgage Rates Drop as the Fed Moves to Stabilize The Economy. The average U.S. fixed rate for a 30-year mortgage fell to 3.5% this week, representing the first decline in three weeks, according to Freddie Mac. The rate is 15 basis points below last week’s level of 3.65% and is more than half a percentage point lower than the 4.06% of the same week a year ago. The Federal Reserve’s efforts to stabilize markets with a pledge of unlimited bond-buying, including mortgage-backed securities, likely caused this week’s rate decline, said Sam Khater, Freddie Mac’s chief economist. “The Federal Reserve’s swift and significant efforts to stabilize the market were much needed and helped mortgage rates drop for the first time in three weeks,” Khater said. “Similar to other segments of the economy, real estate demand is softening. However, the combination of the Fed’s actions and pending economic stimulus will provide substantial support to the mortgage markets.”
How Record Unemployment Claims Will Affect the Housing Market. A record 3.28 million Americans filed for unemployment support in the week ending March 21 – the most claims ever filed in a single week.“Normally, when an economy goes into a recession it develops slowly over time,” says realtor.com Chief Economist Danielle Hale. “That’s not happening this time around. It’s pretty clear that the economy is grinding to a halt pretty suddenly.” However, folks shouldn’t expect home prices to plunge by the double digits as they did during and after the Great Recession. In the last downturn, there were many more properties for sale, due to an overabundance of construction and mass foreclosures, than there were qualified buyers. This time around, there is a severe shortage of housing for sale. Builders haven’t been putting up enough homes to meet the demand for years. And there isn’t likely to be a huge wave of foreclosures because borrowers are in better financial shape. Plus, the federal and many state governments, along with some banks, are rolling out forbearance and other programs to help Americans who’ve lost their jobs stay in their homes. This is all likely to stabilize prices.