By now, the entire nation is reckoning with two truths. First, the coronavirus is going to have a huge impact on all of us, one way or the other. Second, that while mortgage rates will likely continue to decline, even if marginally, managing the multitude of questions and challenges related to this new refi business may bring some unforeseen complexities.
Here are some questions and concerns that need to be addressed, proactively. In no particular order:
- Final Pre-Close Verbal VOE – What if this is for a teacher and the school is closed or a business that is shut down for two months. Can you close?
- Esignatures – They are permitted in almost all states, but promissory notes and DOTs still require wet signatures. How will that be dealt with if there is concern about human contact? Fannie, Freddie, FHA, VA, USDA, and all of the country recorders….can this be modified? What happens if or when the county recorders offices close?
- Lost Wages – Millions of American cannot survive missing as little as one paycheck, how does this impact housing? What happens to expected rents on multi-family and other rental housing as well as mortgages?
- Uncertain Future– Airlines, retail, restaurants, and more are laying people off. How certain will their future employment be? Will all these businesses come back? How do you determine how to underwrite as this employment contagion spreads?
- Government Contracts – Government contractors are a predominant workforce in the DC area, will contracts continue to be paid if the work stops even if temporarily? How will this impact mortgage payments? How should this impact underwriting decisions?
- Default Prep – With the likelihood that defaults will show a spike, even if short term, what is the administration doing right now to prepare for this? Are forbearance plans in place or being coordinated? Has the administration re-assembled the ‘housing team’ like the Obama administration put together to get plans in place?
- Delinquency Options – In that context, the greatest portfolio-wide stress will be on the FHA program where early payment delinquencies were already double year-over-year and where FICO scores have been dropping and excessive DTIs rising over the past year. What is the liquidity plan to manage servicing advances to investors needed on defaulted loans – especially if things like forbearance plans kick in? How about an emergency modification to potentially curtail ‘scheduled’ payments and move to ‘actual’ only during this crisis? Why not distribute this stress through to the MBS investor in order to alleviate specific institutional risk? What about other liquidity options using the FHLBs or the fed window to be applied more broadly during this time?
- Mandatory Work from Home – The CDC has suggested that events with over 50 people should be cancelled. Isn’t work, for most Americans, a daily event of over 50 people? While many have told their employees to work remotely, there are far too many employers still requiring their people to show up or have made it an ‘optional’ requirement. In our industry it is shocking, frankly, that all have not established a firm, mandatory, telework policy for all employees.
- Influencing Policy – I am certain that most DC trade associations are establishing a list of things that this administration should consider as they think through how to deal with this. They should share these publicly. Given the experience of ‘slow to respond’ performance this should be a time where collective pressure on policy makers should be applied broadly.
- Human Contact Avoidance Alternatives – I am hearing about appraisers not wanting to inspect interiors or wanting the homeowner gone and to leave all lights on so that they don’t have to touch anything. I am hearing how borrowers do not want to walk into a settlement office to sign anything in person. I am hearing concerns about house hunting with a realtor looking at new homes when the fear is that any ‘might’ be contaminated. Are there options for any of this to keep business flowing? And how serious might this get over time?
This is just a top-of-mind list of things that might need consideration as the virus continues and likely grows. The adverse impacts might become almost frighteningly real. Let’s hope not, but what questions would you add to this list?
David H. Stevens, CMB, is a Mortgage Media Advisor, and former SVP of Single Family at Freddie Mac, former EVP at Wells Fargo Home Mortgage, former President and COO of the Long and Foster Realty Companies, former Assistant Secretary of Housing and FHA Commissioner, former CEO of the Mortgage Bankers Association.