Housing inventory is at a record 50-year low, and with mortgage forbearance set to expire soon for millions of homeowners, the risk of foreclosure is on the rise for many households.
In order to keep homeowners in their homes, and to avoid a further decrease in already scarce housing stock, action is needed on the part of lawmakers and GSEs, said the authors of a new paper titled Protecting Homeownership From the Impact of COVID-19, which was co-sponsored by the National Association of REALTORS®. Solutions will need to be multifaceted, the authors stated, focusing on interventions for both the owners and for the properties themselves. The paper was presented on Wednesday during the Regulatory Issues Forum at the 2021 virtual REALTORS® Legislative Meetings.
The CARES Act forbearance program was one of the great successes of the national response to the pandemic, enabling many homeowners to get into a solution quickly, said Julia Gordon, president of the National Community Stabilization Trust and a co-author of the paper. However, there are two ways in which the program was “significantly imperfect,” Gordon stated, noting first that no cash assistance was provided to homeowners. Instead, she said, owners were permitted to pause payments, which offered immediate relief, but meant that all payments would come due at the end of the forbearance period. With approximately 8 million jobs currently missing from the economy, and many millions more still underemployed, many households may be unable to pay what they owe, said Gordon.
The second issue with the forbearance program, Gordon stated, was that 30% of all mortgages—those held in private portfolios—were ineligible for the program, leaving a large chunk of borrowers with no access to forbearance.
“It’s important that we prioritize borrowers who have no other options right now,” said Gordon.
Debby Goldberg, vice president for housing policy and special projects at the National Fair Housing Alliance and a co-author of the paper, recommended extending CARES Act protections to the 30% of the market not covered by current forbearance options so that all borrowers are eligible for the same coverage. Then, she said, it’s important for lawmakers and GSE officials to focus on the people behind the mortgages to help them find forbearance solutions that will enable them to start making payments again.
Too often, borrowers are presented with forbearance options one at a time, without being made aware of all the choices that are available to them, said Goldberg. “Borrowers, out of fear and lack of knowledge, will take the first option, even if it’s not the best one,” she explained.
A better approach, Goldberg said, would be to layout options like a menu, and it’s important for staff working with borrowers to be well-trained, and for agencies to have effective quality control protocols in place to monitor the mortgage servicing process. “We want to communicate clearly and effectively this complicated information,” said Goldberg, “and make sure borrowers understand what they are being told.”
Goldberg stated that it’s also crucial to devise strategies to prevent the pandemic from having a negative effect on people’s credit scores and to ensure that borrowers who need them can obtain new mortgages.
Unfortunately, there will be many cases where keeping people in their homes isn’t possible, Gordon said, and when houses are vacated through foreclosure, it’s vital to take measures to keep those properties in circulation as owner-occupied dwellings rather than as rentals. The rise of online auction sites, iBuyers, and rental securitization, along with the loss of approximately 8 million homes to foreclosure during the Great Recession, have all contributed to the inventory shortage that we are currently experiencing, Gordon stated, adding that the shortage will likely get worse unless active steps are taken.
Fannie Mae, Freddie Mac, FHA, and Congress need to set policies related to sales, short sales, and foreclosures that “put the thumb on the scale” for homeowners rather than investors, Gordon said. For example, Gordon noted that at FHA, homes in the claim without conveyance of title third-party sales program are in many cases being sold directly to investors, without ever being conveyed back to HUD and the HUD REO program.
Gordon also warned of the hazards of so-called zombie foreclosures—homes in which the foreclosure process was started but never completed, and the owner vacates the property without the title ever being transferred. “Servicers just walk away from these properties and don’t put them through the foreclosure process, so they can’t be put to productive use,” said Gordon.
In addition, vacant properties are an oversized problem for communities of color, Gordon stated, and this disparity needs to be addressed. “We want to aim solutions at all areas as we come out of this crisis,” she said.
Jennifer Schwartz, director of tax and housing policy at the National Council of State Housing Agencies, urged homeowners to explore their options through the Homeowner Assistance Fund, and the state-by-state resources available through the NCSHA’s emergency housing assistance portal.
In addition, Dr. Makada Henry-Nickie, governance studies fellow at the Brookings Institution, recommended the Consumer Financial Protection Bureau as a resource for homeowners if they believe mortgage servicers haven’t been in compliance with federal programs.
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