MCBC’s Mortgage Lending Roundtable Roundup – Spring 2020

June 25, 2020

May 19th Roundtable – ‘How does COVID-19 impact all of us?’

MCBC’s Mortgage Lending Roundtable series quickly pivoted from discussing down payment assistance programs to the impact of the COVID-19 pandemic.

Most recently, MCBC’s May 19th Roundtable asked ‘How does COVID-19 impact all of us?’ perspectives from across the mortgage lending industry. The conversation focused on first-time homebuyers and communities hardest hit by the pandemic.

The roundtable discussion highlighted perspectives and insights from:

  • Dean Lennon, Esq. of Marcus, Errico, Emmer & Brooks
  • Debbie Sousa, Mass. Mortgage Bankers Association
  • Melvin Vieira of RE/Max Destiny/The Vieira Group in Jamaica Plain and Vice President of the GBAR Board of Directors
  • Tim Warren, The Warren Group

Below is a summary and highlights from the Roundtable discussion:

  • What were economic conditions leading up to COVID-19?   How does the impact of COVID-19 compare to the mortgage market disruption in 1990 & 2008?

Unlike the last real estate market disruption, the mortgage market was healthy in the months leading up to the pandemic. Pricing was reasonable and demand was robust. Other economic indicators – the stock market, employment, and consumer confidence – were all incredibly strong. It is important to remember, COVID-19 is a public health crisis that led to a temporary government shut-down or slow-down of the economy.

In comparison from 2006 to 2011, the medium home price in Massachusetts declined 20%.  In the period preceding that 20% decline, there was six straight years where the median home price increased 10% every year, one year after another.

In the last six years of economic expansion since the Great Recession, home prices have only increased 24%. Average price increases of 4% annually is much more in line with growth in personal incomes, rates of inflation and other indicators. As such, it would not follow, that there will be a pricing adjustment of the magnitude seen during the Great Recession.

MLS data indicates that pending sales (those homes that went under agreement) during the month of April were down 47% from last April. Interestingly, in the first half of May, pending sales were only down 29%.

  • What are the biggest COVID-19 challenges that you are seeing impacting LMI borrowers or communities? How is the Spring Market of 2020 fairing?

Sellers are challenged right now with thinking about how to put their home on the market. If they are going to be putting their home in the market, how do they go about it? How do they keep everybody safe inside?

Although inventory has shrunk, product is staying on the market 10 to 15 days longer than average.

Verifying employment is challenging. Lender are checking to see, even on the day of closing, if borrowers remain employed.

Very low LMI borrowers and potential borrowers are concentrated in the service and retail businesses, so the economic shut down and loss of income has hit this community particularly hard.

Some lenders have stopped offering state housing agency loans for fear the loan won’t be purchased. Other lenders continue to work with MassHousing to provide closing packages within five days of closing so that it can be sold within two weeks.

It is a challenge for realtors and lenders to keep up with the changing legislative landscape locally, statewide, federally.

  • How have forbearances impacted LMI borrowers or real estate transactions?

While underwriting isn’t changing, there are a lot of questions from a compliance perspective about what types of income can and can’t be counted towards ONE Mortgage income limits. One example being the extra unemployment payment. If you have a non-borrower on unemployment, that income may be counted. But the extra $600 of unemployment is not being counted towards income eligibility. Underwriting decisions follow the Fannie Mae guidance.

Under the CARES Act for Fannie, Freddie and HUD, borrowers must affirm that COVID-19 impacted them financially. Affirming does not require documentation.

Do homeowners understand the pros and cons of a forbearance? A forbearance can be reported, but not the delinquency. What’s the impact of someone that was in forbearance a year from now? What’s the impact of, “Hey, they were in forbearance but they never lost their job or income?” What does that look like on a future lending decision?

If forbearance is elected, the borrower has been blocked from doing a refinancing or taking on a new mortgage if they sell. It’s a shame, especially for people who may have accidentally elected the forbearance and must now deal with the negative consequences that they almost certainly didn’t know about, is troubling.

  • Are homeowners making HOA / condo fee payments and has this impacted mortgage financing?

So far, we have not seen an uptick in delinquencies as a result of COVID-19. It will be interesting to see what happens in the summer months because cases are referred if someone is at least three months in arrears. It is reasonable to assume there is an uptick coming, but the magnitude is unknown Most associations still need to raise money to pay for insurance, utilities, landscaping and plowing. There may be opportunities for homeowners to pay for their arrearage over a six-month period.

For those municipalities that provided some real estate tax relief, it was welcomed news to some HOAs and associations.

Cleaning costs and insurance cost are going to rise as communities reopen common spaces like gyms, pools, and clubhouses. It will be critical for condo boards to understand the implications of reopening these spaces, the regulations for disinfecting spaces, and taking on that shared responsibility.

In Massachusetts condo fees are part of the super lien priority. So, when you’re in forbearance, one of the things that the servicers have to do is figure out, well, can you pay your taxes? Can you pay your insurance and can you pay your condo fees? Because one way or another, those are going to get paid. This is how the liquidity of lenders can be impacted, because if the borrower can’t pay the fee, the lenders must. Lenders can’t have a property in their portfolio that is uninsured and they can’t have that condo lien take precedent over the mortgage. Condo fees are always going to be paid.

  • Will the new reopening procedures announced by Gov. Baker have an immediate effect on your industry? 

Homeownership counselors are making the move to virtual classes and investing in new platforms.

There is renewed focus on the role of notaries, the registry of deeds, and the title recording process.

The pandemic will change how we’re building within the inner city. Going forward, I think we’re going to have less office space because of the willingness to work from home.

Code enforcement and housing production professionals must contemplate how overcrowding has contributed to the spread of COVID-19. Due to the housing shortage and a lack of affordability, individual apartments are overcrowded so it becomes an unsafe environment for family members to shelter in place.

  • Survey of predictions about home sales volume and prices in 2020 & 2021.

Sales are expected to improve near the end of June. A price contraction of 2.7% is expected by October. Fannie Mae predicts a 25% decline in sales volume in quarter two; a 15% decline for the year as a whole; and a 1% decline in prices this year. These predictions are much more optimistic than we saw in the last recession.

In addition to the roundtable discussion, Elliot Schmiedl provided an update on Mass Housing Partnership’s ONE Mortgage program.

In March and April, MHP focused on assisting existing borrowers with deferment requests. MHP estimates 7% of borrowers entered into forbearance.

It will be important to examine and understand disparate impact of this population in the coming months.

What does the borrower profile of those in deferment and forbearance look like? Who are these folks? Where are they located? What kind of property types do they own? 

As forbearance activity begins to slow, MHP’s focus turns to production volume in next several months. MHP isn’t thinking about changing underwriting guidelines for the ONE Mortgage in light of the pandemic.

It’s been 18 years (2002) since there was a year in which March and April had fewer closings than 2020. Still, MHP was hopeful there will be an uptick in sales this summer. What is driving that optimism?

While closings have been low, applications have been coming in at a steady pre-COVID rate. And the reason for that?

  1. Loan officers try to keep their pipelines as full as they can. Get clients queued up and qualified if they’re still employed and interested in homeownership. MHP is receiving applications from a variety of lenders in geographies throughout the state. Lenders don’t appear to be scaling back participation in the market.
  2. MHP is in close communication with homebuyer agencies who say classes remain full. Those who remain employed and well-positioned to access the market are taking this opportunity to take a homebuyer class to get prequalified.
  3. Engagement in MHP’s digital advertising is up. As more people are home on their computers and phones and scanning their social media feeds, they are engaging in MHP’s digital ads.

And that’s all good news – LMI households will continue to have access to affordable homeownership opportunities.

Trends indicate pent-up demand from the spring buying season will shift to the summer months of June, July, August, and September.

Attendees agreed that satisfying pent-up demand will depend on the availability of inventory. Everyone is hopeful listings won’t be pulled back. And that potential LMI borrowers will be able to maintain employment, income, and savings.

Still, the question was asked: How can we get potential LMI borrowers back on the road to homeownership sooner rather than later, if the pandemic has changed their homeownership timeline?

There may be a need for renewed focus on down payment assistance programs to help maintain that pipeline of borrowers.

More importantly, what happens after the mortgage deferment and forbearance period ends?

Lisa Fiandaca shared that MassHousing has processed nearly 1,300 forbearance applications.  Each forbearance is for three months, at which time they’re renegotiating, discussing available options, and  continuing with the forbearance.

 

Mass Division of Banks, MassHousing, & MHP led the April 7th Roundtable Discussion 

Mass. Division of Banks discussed industry guidance related to the COVID-19 outbreak in advance of their webinar COVID-19 Mortgage Modifications (Perspectives and Considerations).

Kevin Cuff discussed the following guidance:

 

April 6th

Consumer assistance available for a range of mortgage loan types and national-level moratoria on foreclosures and evictions

Overview of Ginnie Mae’s Pass-Through Assistance Program (PTAP) for mortgage lenders and servicers

 

April 2nd CFPB Public Service Message

CARES Act Mortgage Forbearance: What You Need to Know

 

April 1st HUD Mortgagee Letter 2020-06

FHA’s Loss Mitigation Options for Single Family Borrowers Affected by the Presidentially-Declared COVID-19 National Emergency in Accordance with the CARES Act

 

March 25th Foreclosure prevention:

Division of Bank’s Industry Guidance Regarding Support for Mortgage Loan Borrowers Impacted by the Novel Coronavirus (COVID-19)

 

March 20th Loan Closings:

Order Permitting the Temporary Conditional Deferral of Certain Inspections of Residential Real Estate

 

Mayte Rivera presented the March 19th guidance related to the Community Reinvestment Act:

The Division of Banks joins FFIEC agencies in promoting CRA consideration for activities in response to the COVID-19

The Division of Banks joined FFIEC agencies in promoting CRA consideration for activities in response to the COVID-19.

The agencies will favorably consider retail banking services and retail lending activities in a financial institution’s assessment areas that are responsive to the needs of low- and moderate-income individuals, small businesses, and small farms affected by COVID-19 and that are consistent with safe and sound banking practices.

Activities may include:

  • Waiving certain fees, such as:
    • Automated teller machine (ATM) fees for customers and non-customers,
    • Overdraft fees,
    • Late payment fees on credit cards and other loans, and
    • Early withdrawal penalties on time deposits;
  • Easing restrictions on cashing out-of-state and non-customer checks;
  • Expanding the availability of other short-term, unsecured credit products for creditworthy borrowers;
  • Increasing credit card limits for creditworthy borrowers;
  • Providing alternative service options to customers in light of limited ability to access branches; and
  • Offering payment accommodations, such as allowing borrowers to defer or skip payments or extending the payment due date, which would avoid delinquencies and negative credit bureau reporting, caused by COVID-19-related issues.

In light of the declaration of a national emergency, financial institutions will receive CRA consideration for community development activities.

  • Qualifying activities include those that help to revitalize or stabilize low- or moderate-income geographies as well as distressed or underserved non metropolitan middle-income geographies, and that support community services targeted to low- or moderate-income individuals. Such activities may include, but are not limited to:
    • Loans, investments or services that support digital access for low- and moderate-income individuals or communities;
      Loans, investments or services that support access to health care, particularly for low- and moderate- income individuals or communities;
    • Economic development activities that sustain small business operations, particularly in low- and moderate-income communities; and
    • Investment or service activities that support provision of food supplies and services for low- and moderate-income individuals or communities.

Favorable consideration will be given to community development activities located in a broader statewide or regional area that includes a bank’s CRA Assessment Area and that help to stabilize communities affected by the COVID-19, provided that such institutions are responsive to the community development needs and opportunities that exist in their own assessment area(s).

  • This statement is to remain effective for a six-month period after the national emergency declaration is lifted, unless extended by the agencies (inclusive of the Massachusetts Division of Banks).

Presentation slides can be accessed here: MCBC Mortgage Lending Forum 4072020.