- Mortgage lenders are preparing for mass foreclosures and mortgage market pandemonium
- With a staggering 16.8M new jobless claims in just the last three weeks, borrowers can ask for mortgage forbearance for as many as 180 days on federally backed loans
According to Mark Zandi, chief economist with Moody’s Analytics, there could be approximately 15M households, or some 30% of Americans with federally backed loans on their homes, who could simply stop paying their mortgages for up to 180 days. And those homeowners would avoid penalties and a ding to their credit scores.
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Borrowers know that the $2.2T Coronavirus Aid, Relief and Economic Security Act offers mortgage forbearance and deferral programs for as many as 180 days (not as gifts – deferrals must be repaid) to homeowners who’ve been hit by financial impacts from the pandemic but…as Susan Wachter, professor of real estate and finance at the Wharton School at the University of Pennsylvania, said, “This is an unprecedented event…the great financial crisis happened over a number of years. This is happening in a matter of months…a matter of weeks.”
In the meantime, no one, not the doctors and certainly not the lenders, knows how long this coronavirus pandemic is going to last nor how long the effects on the economy from the pandemic will last. Of course, the shorter, the better for both borrowers and lenders.
Tendayi Kapfidze, chief economist with LendingTree, believes that no matter how long this economic nightmare lasts, the government “will have to find a way to prevent foreclosures…that could re-infect the economy.”
Bank of America told BloombergNews it had already allowed 50,000 of its borrowers to defer mortgage payments. Some but not all of those borrowers have federally backed loans and those without that backing are not covered by the government’s relief package.
Treasury Secretary Steven Mnuchin gathered together a task force to discuss options in the event of a liquidity shortfall by mortgage services since those servicers are required to compensate bondholders even if/when homeowners do not pay their monthly mortgage payments. So far, this task force has not concluded anything.
LendingTree’s Kapfidze said, “I expect policy makers to do whatever they can to hold the line on a financial crisis. And that means preventing foreclosures by any means necessary.”
Thanks to BloombergNews.