“The halting of all foreclosure actions and evictions for the next 60 days will provide homeowners with some peace of mind during these trying times,” HUD Secretary Ben Carson said.
HUD directed mortgage servicers to halt all new foreclosure actions and suspend those already in progress. There are 8.1 million active FHA loans, though it remains unknown how many families would have been facing foreclosure caused by the current economic challenges. Only 3.78 percent of FHA loans were delinquent for 90 days or more, according to HUD. Many of the borrowers are first-time home buyers who may have challenging credit histories.
Federal Housing Commissioner Brian Montgomery said the agency typically issues foreclosure moratoriums after major natural disasters such as hurricanes and tornadoes.
“All we are doing today is just hitting the pause button,” Montgomery said in an interview. “This is something they don’t have to worry about for 60 days, and we could extend it after that.”
HUD also is encouraging public housing authorities not to evict tenants who do not pay their rents on time and is working with Congress to give the agency the authority to prevent evictions in public housing programs, Carson said. Several public housing authorities, including the New York City Housing Authority, the largest in the nation, have implemented moratoriums on evictions.
Mortgage delinquencies remain near record lows, but a moratorium on foreclosures and evictions will help address the immediate public health emergency by keeping people in their homes, Mark Calabria, director of the Federal Housing Finance Agency, said in an interview.
Fewer than 200,000 homes backed by the mortgage giants are more than 90 days delinquent. Depending on the state, the typical foreclosure can take more than a year to complete.
FHFA also ordered Fannie Mae and Freddie Mac to establish a forbearance program allowing borrowers affected by the coronavirus to skip their mortgage payments for as long as a year. The missed payments could be added to the end of their mortgage or repaid in a balloon payment.
Borrowers affected by the coronavirus, including losing their job, should contact their mortgage service to apply for forbearance relief, Calabria said. “We don’t want people who aren’t suffering hardship to apply. That will overwhelm the system,” he said.
The program will last at least 12 months but “our hope is that it will not be needed that long,” Calabria said.
Fannie Mae and Freddie Mac play a critical part in the housing market, buying mortgages from lenders, then packaging them into securities to sell to investors. The government seized control of both companies in 2008 as the housing market unraveled and the firms’ losses piled up.
Diane Yentel, president and chief executive of the National Low Income Housing Coalition, said Wednesday’s move by HUD and the Federal Housing Finance Agency are “important first steps to ensuring that renters and homeowners are able to keep a roof over their heads” during a public health emergency.
But more needs to be done, she said.
“Congress must implement a national moratorium on all evictions and foreclosures, as well as fund rental assistance and grants to homeless service providers and outreach workers to get people quickly and affordably housed,” Yentel said. “Now more than ever, housing is health care.”
The mortgage industry also may need to employ crisis-era tools if the economic damage from the coronavirus lingers, including forgiving loan payments all together rather than requiring them to be repaid later, said Guy Cecala, publisher of Inside Mortgage Finance. “If you are behind two payments you have a chance of catching up. When it’s up to four, five payments, that’s when it becomes an issue,” he said.
If the coronavirus turns into a widespread economic disaster, it also could test the infrastructure of the mortgage industry, a decade after faulty loans caused the global financial crisis. More borrowers now send their mortgage payments to non-banks that don’t have as much money as traditional banks, Cecala said.
“In the last five or six years, nonbanks have taken over. They have much less capital at their disposal,” Cecala said. “Some of those institutions, they may be taxed if they have to offer forbearance for more than a month or two,” he said.
The government should focus on getting money into the hands of consumers through unemployment insurance or the cash payments being proposed by the Trump administration, Jaret Seiberg, an analyst with Cowen Washington Research Group, said in a research note. “The best option is to give individuals the ability to continue making their mortgage payments,” he said.
Wide scale mortgage forbearance could become too costly for the industry without government help, he said. “The problem is that we don’t see how servicers — either banks or nonbanks — will have the liquidity needed to provide comprehensive forbearance,” Seiberg said.