The Looming Danger Facing the Affordable Housing Industry

Article originally posted on HERE on December 28, 2020

The economic hardships wrought by the coronavirus pandemic will be long-term, and millions of renters and homeowners alike could take a serious hit in the upcoming months, affordable housing experts said on a recent webinar hosted by Freddie Mac.

Despite economists’ more optimistic housing predictions for the year ahead, one panelist felt that the worst may still be yet to come.

“We’re going to be starting off 2021 in a very difficult place when it comes to a potential wave of evictions as well as a current growing forbearance pipeline and delinquencies,” said Alanna McCargo, Vice President of Housing Finance at the Urban Institute. “Both of those dynamics are going to be sort of the things that are front and center.”

McCargo explained that in order to prevent a foreclosure crisis, housing professionals need to focus on one priority: keeping Americans in their homes.

“That means we need to be thinking about, on the homeownership side, loss mitigation programs that work for long term,” McCargo said. “This isn’t a short term crisis like natural disasters. This is a long term recession and it’s going to have implications for quite some time.”

She said that housing leaders will need to dig deep to find solutions, such as keeping people in forbearance longer or working out longer-term solutions for borrowers exiting forbearance. Reducing payments as homeowners get back on their feet could be vital, she said.

“All of those things are going to be really critical in the loss mitigation realm, so keeping people housed will be sort of be priority one and of the most difficult challenges that we’ll all face,” McCargo said.

The latest data from the Mortgage Bankers Association shows Fannie Mae and Freddie Mac loans in forbearance decreased to 3.26% as of Dec. 6 – an 8-point improvement. Ginnie Mae loans in forbearance decreased 21 points to 7.68%. But despite these improvements, more borrowers are again starting to seek relief with new forbearance requests reaching their highest level since the beginning of August. Roughly 1.8 million homeowners were also seriously delinquent on mortgage payments in October, according to data from Black Knight.

One way to ensure borrowers are maximizing their options is to offer refinances as a form of mitigation.

“I think we should be thinking about refinancing as part of the loss mitigation toolkit,” McCargo said. “People are maybe not losing their jobs entirely but they’re losing some of their income. And these refinances would help, in some cases, families reduce their monthly payment in half. That’s huge.”

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