No one should be worried about losing their home, Federal Housing Finance Agency Director Mark Calabria said on Monday, April 27.
“No lump sum is required at the end of a borrower’s forbearance plan for enterprise-backed (Fannie Mae and Freddie Mac) mortgages,” read his statement.
That reminds me something Forrest Gump said: “Stupid is as stupid does.”
It is utterly irresponsible for Fan and Fred’s regulator and conservator to provide such a baseless reassurance to homeowners.
The Cares Act allows a maximum of 12 months of payment skipping. But the missed mortgage payments are not forgiven. Somehow, someway, repayment is still required, job or no job.
And Fannie and Freddie only accounted for about 43% of all mortgages in 2019.
For mortgages not covered by Calabria’s forbearance lump sum payment exclusion, there are three ways to make up forbearance balances, according to real estate attorney Dennis Doss.
- A balloon payment at the end of the forbearance period;
- Spreading the forbearance balance over time; or
- Paying the balance at the conclusion of the mortgage term.
“It’s the luck of the draw,” said Doss. “I’d beg, borrow or steal to keep my mortgage current.”
Even if you were lucky enough to get a Fan or Fred forbearance, you may have a shock you simply cannot afford once your house payments resume. And, who knows when you will recapture the income stream you lost?
In the seven short weeks since President Trump declared the coronavirus emergency, 3.5 million homeowners (7% of approximately 50 million total borrowers) are already in forbearance, according to this week’s Mortgage Bankers Association lender survey.
Homeowners have accrued $754 billion of unpaid principal, according to Black Knight. Add in the unpaid mortgage interest not counted. Well, you get the picture.
And what about home prices?
National Association of Realtors Chief Economist Lawrence Yun says prices will hold up just fine in most markets, with price drops likely only at the upper end.
“I project the national median home price to increase 1.3% for the year,” he said.
Great news! But that is the same Lawrence Yun who said in July 2007, “Essentially, we see that the existing-home market is stabilizing in a broad cyclical trough and moving in the right direction.”
Chief Realtor cheerleader for sure.
According to Black Knight, U.S. property values totaled nearly $15 trillion as of December 2012 ($4.6 trillion in California), with nearly $4 trillion in equity.
Fast forward to December 2019. U.S. property values were worth over $21.6 trillion ($6.5 trillion in California), and home equity was just over $10.2 trillion.
Property values increased 44% and equity increased by 155%.
What is that old saying about the bigger they are, the harder they fall?
In many corners, folks are comparing this pandemic calamity not to the Great Recession, but to the Great Depression, with 30 million new job losses (so far).
How far and how fast will property values fall? And how many more families will lose their homes with the additional weight of the forbearance, negative equity and unpaid, uncalculated mortgage interest?
Director Calabria, what do you mean there’s nothing to worry about? That’s almost as bad as President Trump’s Lysol moment.
Next week: Ways to borrow time if you are approaching the mortgage financial edge.
Freddie Mac rate news: The 30-year fixed-rate averaged 3.23%, down 10 basis points to the lowest level on record. The 15-year fixed-rate averaged 2.77%, down 9 basis points from last week.
The Mortgage Bankers Association reported volume for purchase loan applications increased 12% from a week earlier, but refinance applications decreased 7%, for an overall decline of 3.3%.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $510,400 loan, last year’s payment was $262 more than this week’s payment of $2,216.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with 1 point: A 30-year FHA (up to $442,750 in the Inland Empire, up to $510,400 in Los Angeles and Orange counties) at 2.75%, a 15-year conventional at 2.5%, a 30-year conventional at 3%, a 30-year conventional high-balance ($510,401 to $765,600) at 3.25%, and a 30-year jumbo adjustable-rate mortgage that is locked for the first five years at 4%.
Eye catcher loan of the week: A 30-year fixed rate at 3.375% without cost.
Jeff Lazerson is a mortgage broker and adjunct professor at Saddleback College. He can be reached at 949-334-2424 or firstname.lastname@example.org. His website is www.mortgagegrader.com.