How many homeowners are orbiting the drain at risk of losing their homes to COVID-19, resulting in job losses?
How many took the chance to sign up for Mortgage Forbearance without knowing what might be around their income corner?
And how many mistakenly used the forbearance safety net of the CARES Act and used their mortgage payment to buy stocks, real estate, or bitcoin?
How many will need a lifeline is the great mystery of the COVID-19 mortgage.
Government officials assume the worst.
On Monday April 5th, the Bureau of Consumer Financial Protection proposed a new rule that would require mortgage servants to postpone foreclosures on primary residences until after December 31st.
The proposed rule would affect all lenders, not just the Fannie, Freddie, FHA, and VA servicers who fall under the original CARES Act leniency.
The CFPB press release states that nearly 3 million homeowners are behind on their mortgages. Industry estimates of 1.7 million are expected to step out of leniency programs in September.
According to the Mortgage Bankers Association, the number of forbearances peaked in June at 4.3 million, or 8.53%. This week, the MBA finds an estimated 2.5 million homeowners, or 4.9%, to be lenient, down a 42% decrease.
Black Knight data shows 3.35 million borrowers were overdue or facing foreclosures as of the end of February. Foreclosure proceedings were initiated against 168,000.
The mortgage industry seems to support the CFPB proposal.
“We have the same goal: to avoid foreclosure whenever possible,” said Bob Broeksmit, President and CEO of MBA. “Servicers have successfully helped more than 1.4 million borrowers obtain payment facilities and sustainable long-term solutions.”
Because of online chatters, some other industry stakeholders are against it.
Allegations made by bureaucrats are only countering this foreclosure to argue that it is a government overshoot and a breach of the contractual obligation between investors and mortgage servicers.
Look at the mortgage meltdown. Nationwide, according to Black Knight, 6.3 million families lost their homes to foreclosure from 2007 to 2013 (1.13 million in California).
There are three main differences between this meltdown and today’s pandemic-induced disaster. The economy is now recovering quickly. Homeowners have sizable equity that gives them more hope. And the foreclosure process is faster today than it was a decade ago.
“The economy is booming,” said Mark Zandi, chief economist at Moody’s Analytics. 22 million jobs have been lost since March 2020, but about 14 million have been restored since then, according to Zandi. He predicted the economy will create 6-8 million more jobs over the next 12 months.
“By this time next year the labor market will recover completely,” he said.
This CFPB foreclosure plan can ultimately save a wide variety of homeowners from foreclosure.
If the CFPB proposal is finally approved and the foreclosure process cannot begin until next year, many more vulnerable borrowers are likely to find financially meaningful jobs and get back on the mortgage course.
Preserving as much home equity as possible (property value minus mortgage liens) is a powerful motivator to keep your home or at least avoid foreclosure.
If at some point the homeowner has to sell, he or she will face high rents and struggle to get back into the homeownership race.
“The servicer will benefit from the sale of the property,” said Guy Cecala, CEO and Editor of Inside Mortgage Finance. “This is not a consumer benefit.”
These days, mortgage service providers have a better, faster, and cheaper way to go than the meltdown days, in case they ever need foreclosure.
“Lenders are now better prepared for foreclosures,” said Raymond Snytsheuvel, chief operations officer at FirstLine Compliance.
Snytsheuvel estimates that the foreclosure took about two years in California and at least five years back then in New York.
“It’s less than six months in California today,” he said.
Freddie Mac Rate News: The 30-year fixed interest rate averaged 3.13% and was thus 5 basis points below last week’s value. The 15-year fixed interest rate averaged 2.42%, 3 basis points below last week’s value.
The Mortgage Bankers Association reported a sharp 5.1% drop in application volume from the previous week.
Bottom line: Assuming a borrower receives the average 30 year fixed rate on a compliant loan of $ 548,250, the payment last year was $ 60 higher than this week’s payment of $ 2,350.
What I see: On-site, well-qualified borrowers can get the following 1-point fixed rate mortgages: a 15-year FHA at 1.75%, a 30-year FHA at 2.25%, a 15-year conventional at 2.125%, a 30 year old. Year conventional at 2.75%, a 15-year conventional high-balance (548,251 to 822,375 USD) at 2.25%, a 30-year conventional high-balance at 2.75% and a 30-year jumbo at 3% .
Eye catching loan of the week: A 30 year high balance fixed rate of 2.99% with no points.