2021 May Be A Boom Year

Premier Reverse Closings

Despite mortgage forbearances, here’s why 2021 may shine bright

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An extension, followed by another extension, and then another.

No one should be surprised. Certainly, no one wanted to see Americans evicted from their home and left scrambling to find a new roof over their head. Therefore, mortgage forbearances and extended deadlines seem prudent, however, they will come at a cost.

Yesterday HUD announced FHA’s fourth extension for foreclosures and evictions since the COVID-19 pandemic hit early this spring. What does this have to do with reverse mortgages? Ironically it may actually make 2021 a prosperous year for our industry.

Homeowners with loans backed by FHA must request forbearance from their loan servicer on or before February 28, 2021- a deadline that was set to expire on December 31, 2020.  HUD’s press release reads, “FHA requires mortgage servicers to provide up to six months of COVID-19 forbearance when a borrower requests this assistance, and up to an additional six months of COVID-19 forbearance for borrowers who request an extension of the initial forbearance. Borrowers needing assistance must engage with their servicer to obtain an initial COVID-19 forbearance on or before February 28, 2021.” However, there’s no application deadline for those with loans backed by Fannie or Freddie until these GSE’s decision to stop offering extensions.

This means homeowners unable to make any or part of their contractual mortgage payments could conceivably postpone payments until February of 2022, that thanks to the initial six-month forbearance and subsequent six-month extension if needed.

How could this impact reverse mortgage lending? 

Reverse mortgage lenders and originators may not feel the secondary repercussions until mid-2022 should a glut of expiring forbearances become foreclosures. The first swathe of forbearances are expected to expire in March of next year- precluding any last-minute federal intervention. 

Moreover, the promised ‘V-shaped recovery’ touted last fall did not come to pass as evidenced by nearly 4 million American workers who have been unemployed for more than six months (27 weeks) and a growing percentage of homeowners seeking mortgage forbearance protection. The continued challenges of unemployment coupled with tranches of expiring forbearances stand to significantly impact future home values. The question is when and how much.

While few mainstream housing economists are forecasting a crash, many do see a modest correction in home pricing with inventory increasing as foreclosures come onto the market. After all, you can only kick the proverbial can down the road so far. The good news is despite economic uncertainty and COVID challenges 2021 could be another record year for home sales. As inventory levels remain markedly constrained and interest rates hover near zero- the home-buying frenzy could continue throughout most of next year. Future reverse mortgage borrowers stand to benefit during these curious times with an elevated home value and an increased PLF ratio thanks to absurdly-low interest rates.

Now that’s something to look forward to next year.

Additional Reading:
The Fool: The End of COVID-19 Relief Could Open Up Housing Inventory

FHA EXTENDS OPTIONS FOR SINGLE FAMILY BORROWERS FINANCIALLY IMPACTED BY COVID-19

Shannon Hicks.

Are Forbearances Creating a Housing Bubble?



Will forbearances create another housing bubble?

Mortgage forbearances are being extended. How will home values and borrowers be impacted once they end?

It’s compassionate and pragmatic. Mortgage forbearance allows borrowers to suspend or reduce their monthly payments, however, delinquent payments must be repaid. The good news is homeowners with a federally or GSE-backed mortgage (FHA, VA, USDA, Fannie & Freddie) are protected from a lender initiating foreclosure until December 31st of this year thanks to the CARES Act. FHA-insured Home Equity Conversion Mortgage borrowers are protected under this provision.

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However, there is a less-publicized provision of the Coronavirus Aid Relief & Economic Safety act; a provision that is certain to have a major impact on the housing market and home values.  That provision is the right for the aforementioned homeowners to apply for up to six months and if desired another extension for up to 360 days. No documentation of financial hardship is required to qualify. Basically, that means millions of American homeowners will not be making a payment for up to one year. In essence, our government has attempted to stem a tidal wave of foreclosures and slow damage to our fragile economy delaying the inevitable. The silver lining is home values should remain relatively stable during this temporary calm. That’s a win for reverse mortgage originators who can offer more borrowing power with high home values and low interest rates. Home sales slowed to a crawl in this spring as the first waves of COVID-19 hit our shores. Then the summer months brought record-breaking home sales volumes

as a flood of pent up demand hit the market.

But what happens after mortgage forbearances work their way through the system? Some housing analysts predict 1.9 million or 40% of those in forbearance will end up defaulting. That’s a sobering number but nowhere close to the 3.1 million foreclosure filings seen in the 2008 housing crisis which created a glut of housing inventory driving prices down. A correction in housing values is assured in a cyclical real market but it’s unlikely we’ll see home values plummet immediately. The hope is the air will be released slowly from the housing bubble we find ourselves in today. However, eventually, a toll will be extracted from the housing market for the unprecedented shutdown of our national economy.

Housing prices are marching to the beat of a different drum and seniors are part of the new rhythm which is further constraining housing inventory. “Seniors are scaling down at a far slower rate than in the previous, additional constraining supply. “We were predicting that baby boomers, like past generations at their age, would move into apartments, condos, or to their second homes en masse,” says Ed Pinto- Director of the American Enterprise Institute in a recent Fortune Magazine column. “That isn’t occurring. The main reason they aren’t moving is that their adult children move back in and work from the home they grew up in.”

Two things will mitigate and deflation in housing prices. Housing demand and employment. As more Americans regain employment they are more likely to voluntarily decline further mortgage forbearance and resume making payments. All things considered, a gradual deflation is preferable to a sudden bursting of a housing bubble.

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