If the pandemic taught us anything, it’s how quickly everything can change, and the real estate market is no exception. We went from a blow-out real estate market, overflowing restaurants, planning high school and college graduations to hoarding toilet paper, wearing face masks and checking daily infection counts in less than a month.
What’s ahead for the real estate market, both local and national, is anyone’s guess; unfortunately, there are likely dark clouds on the horizon. With businesses closed, employees laid off and people unable to move around the country, buyers and sellers may have to take a pause. Even with continuing historically low mortgage interest rates, if a buyer can’t qualify because of job loss, it will take a toll on the health of the markets. In addition, available inventory may eventually be impacted because homeowners don’t want strangers coming into their homes and will opt not to list properties for who knows how long.
Meanwhile, homeowners who have lost jobs are struggling with impending mortgage payments, flooding their mortgage companies with requests for help. In addition, they’re having trouble getting through waiting on the phone for hours to reach a real person who may be working from home and having their own personal and technical difficulties.
The stimulus legislation says homeowners hurt by the coronavirus or its fallout can ask their mortgage servicer for a so-called forbearance. This means their monthly payments are interrupted for up to six months and an additional six months can be requested after that. They don’t have to prove they have been hurt by the coronavirus since, if the loan is backed by the government, the mortgage servicer is generally expected to grant the request. Since about 70% of U.S. mortgages are backed or insured by a federal agency like Fannie Mae, Freddie Mac or FHA, this will be a non-issue for most borrowers.
What is not specified in the law is when borrowers have to make up the missed payments. Some homeowners are assuming that they don’t have to make up the payments ever, certainly incorrect. But even when they understand this, there’s still confusion as to how the funds will be made up. The Department of Housing and Urban Development told servicers that holders of FHA mortgages can compile the missed payments into a second, interest-free home loan for borrowers to pay off after the original mortgage.
However, for Fannie Mae and Freddie Mac loans, which represent about half of the country’s mortgage market, that offer was not made. Instead, federal regulators have instructed servicers to work with borrowers and to consider letting them tack their missed payments on to the end of their loan, but are not mandating it.
Lenders, like everyone else, are operating in the dark with no way of predicting the scope or duration of the pandemic and shutdown. Economist Mark Zandi with Moody’s says as many as 30% of Americans with home loans, about 15 million households, could stop paying their loans if the economy remains closed through the summer or beyond.
Are we in for a big wave of foreclosures similar to the housing bubble bursting in 2008? Let’s hope not, but since our real estate market was so strong and so much in demand, it’s not a bad calculation to assume it will be one of the first to come back even in a big downturn. Chin up and stay safe.
