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Coronavirus Biggest wave of delinquency in history
HOW ARE MORTGAGE LENDERS PREPARING FOR THE BIGGEST WAVE OF DELINQUENCY IN HISTORY?
With the corona pandemic, lenders are preparing themselves for the biggest wave of delinquencies in the history of America. If the plan to buy time works for them, they may avert an even worse crisis: mass foreclosures and mortgage market mayhem. The impact of the Coronavirus on the housing market continues to deepen and while it is not widespread just year, stakeholders in the real estate market are all preparing for the worst.
Currently, there are about 10 million new jobless claims and the biggest number of these are the borrowers who lost their income due to the virus. Good news is that they can skip payments for as many as 180 days at a time on federally backed mortgages. Ultimately, this will help them avoid penalties and a blow to their credit scores. However, it should be noted that this extension is not a payment holiday, eventually, they will have to cover it all up.
About 15 million households all across the country could stop paying their mortgage payments if the United States economy remains closed all through the summer and maybe beyond, according to Mark Zandi, the Chief Economist for Moody’s Analytics.
Right now, most lenders feel like they are operating in the dark and it is difficult to predict what direction the Coronavirus will take, but whichever way it goes, there will be significant damage to the economy regardless. Supposing that the cure to the virus is found and the effects of the virus recede soon and the economy roars back to life, then the plan will be to help borrowers get right back on track. But, the greater the fallout, the more expensive it will be to prevent repossessions.
Meanwhile, across the board, Attom Data Solutions examined the market temperatures of different counties at local levels all across the country and as expected, some markets are more vulnerable than others. Attom judged the markets’ risk based on several factors; the percentage of homes that had a foreclosure notice, the percentage of properties where the owner owned more on their mortgage than the home was worth and what the share of the local wages was needed to cover for housing expenses.
On the overall, the new jersey had the most vulnerable counties, a total of 14 of 50 most vulnerable counties in the country. Florida had a total of 10 counties that had a high risk of a downturn as a result of Coronavirus. Most of the vulnerable counties in New Jersey were located very close to the New York metropolitan area, which is the epicenter of the virus in the country.
In California, Shasta was the only market that Attom stressed to be in the list of 50 most vulnerable markets in the country. No other county in California was named in the list, in spite of the fact that places like LA and Seattle have been hit hard by the virus. Attom named cities like Denver and Houston to be among the least vulnerable. “It’s too early to tell how much effect the coronavirus fallout will have on different housing markets around the country,” said Todd Teta, chief product officer with Attom Data Solutions. “It looks like the Northeast is more at risk than other areas. As we head into the spring homebuying season, the next few months will reveal how severe the impact will be.”
BUYERS ON THE RISE… OR IS IT? While the virus has kept most people indoors, it hasn’t done so much to prevent people from buying. There is a good reason for this which is low mortgage rates. As of March 2020, the rates reached an all-time low with the average 30-year fixed-rate loan dropping to 3.29%. This has encouraged a buying spree, which is understandable, you can expect anyone in the market looking for a home to consider taking advantage of the low rates, even with the pandemic.
Moving forward though, it will be interesting to watch if the low mortgage rates will be enough to keep the buyers still interested. Chances are most will shy away due to economic fears and market instability as a whole.
BUT WITH HOPES In most parts of the country, it is a buyer’s market, which means sellers have their backs against the wall. They dont have an upper hand when it comes to negotiations. However, with the declining rates, there is a good chance that the seller’s market is on the way. Going forward, there will be a price war which is already heating up as long as the prospective buyers continue with their search. When this happens, expect the cost of each transaction to skyrocket.
The main concern with sellers is the fear brought forth by the virus. This means that most buyers will be locked in their houses and are worried about making a huge financial decision during economic uncertainty.
LET’S TAKE A BREAK “Nobody has any sense of how long this might last,” said Andrew Jakabovics, a former Department of Housing and Urban Development senior policy adviser who is now at Enterprise Community Partners, a nonprofit affordable housing group. “The forbearance program allows everybody to press pause on their current circumstances and take a deep breath. Then we can look at what the world might look like in six or 12 months from now and plan for that.”
Let’s go with the worst-case scenario, supposing that the pandemic is long-lasting, this means that the government will have no choice but to find a way to prevent foreclosures, which simply means forgiving some debts, said Tendayi Kapfidze, Chief Economist at LendingTree.
As it stands, the risk of allowing foreclosures are too great as it would mean damage to the financial markets and that could reinfect the economy. “I expect policymakers to do whatever they can to hold the line on a financial crisis,” Kapfidze said. “And that means preventing foreclosures by any means necessary.”
...BECAUSE THE WORST IS YET TO COME For most Americans, while most lenders have been giving them a reprieve, they still need time to catch up. The virus took away their incomes
Borrowers must make a decision to first contact their lenders to get the incentives and help to avoid an impact on their credit scores. The Bank of America has said that so far it has allowed 50,000 mortgage consumers to defer payments, this includes the loans that are not federally backed. What follows, of course, are the concerns of a potential liquidity shortfall faced by the mortgage servicers. In response, Treasury Secretary Steven Mnuchin convened a task force to deal with this issue.
“If a large percentage of the servicing book -- let’s say 20-30% of clients you take care of -- don’t have the ability to make a payment for six months, most servicers will not have the capital needed to cover those payments,” Quicken Chief Executive Officer Jay Farner said in an interview.
Mortgage servicers are asking the Federal Reserve and the Treasury Department to use the money from the $2.2 trillion stimulus plan and use the money to help them avoid a liquidity crisis as fewer borrower ake payment, and the firms are obligated to continue paying the bondholders.
Sources & Work Cited
https://www.attomdata.com/news/market-trends/attomdata-solutions-special-report/?mod=article_inline https://www.bloomberg.com/news/articles/2020-03-26/ mnuchin-wants-u-s-markets-open-with-shorter-hours-ifnecessary
Read more
https://www.marketwatch.com/story/these-are-theus-housing-markets-that-are-most-vulnerable-to-acoronavirus-downturn-2020-04-07 https://www.newswire.com/news/coronavirus-and-theforeclosure-market-what-to-expect-21111464 https://www.nationalmortgagenews.com/articles/homelenders-brace-for-up-to-15-million-mortgage-defaults https://www.bloomberg.com/news/articles/2020-04-02/ home-lenders-brace-for-up-to-15-million-u-s-mortgagedefaults