- Are the people entering into loan modifications really a disguised “kicking of the can down the road” as they will likely be unable to make the modified payment should they continue to experience decreased or no income? Said differently, will the modified payments be permanent and are these modified payments representing a meaningful decrease to their existing mortgage payments?
A loan modification can be a new repayment plan, a forbearance agreement, interest rate modification, or any other arrangement that defers or delays the payment of principal or interest. The exact modification will depend on the borrower and lender. However, our analysis shows that even for those that suffer an adverse economic shock, with equity levels near all-time highs, a homeowner has the option of selling the home or tapping into their equity through a refinance until their payment issues can be mitigated.
- What impact do you think the end of the federal unemployment subsidy will have on the forbearance-foreclosure chart that was shown earlier?
The future of the Federal Unemployment benefit remains unclear. However, our research finds that the average unemployment rate gap between renters and owners is 4.4 percentage points. Recessions have typically widened that gap, largely because homeownership is correlated with being older and more educated. Unlike a typical recession, this crisis hit hardest in the service sector, which employs mostly younger, less educated workers. According to data from the Census Pulse Survey, averaging across the four weeks of June, 53 percent of renter households experienced a loss of employment income, compared to 39 percent of owner households.
It is important to note that the fiscal support for household’s unemployment benefits and the initial stimulus plan has helped to prop up consumer spending, which is a key driver of economic growth.
- Given that residential real estate is "local," what MSAs are the best, and worst, buyers' and sellers' markets this summer, and why? (i.e., Covid-driven unemployment, lack of inventory, etc.)
According to our Real House Price Index (RHPI), in May 2020, the markets with the biggest drop in affordability were: New York, San Diego, Pittsburgh, Orlando, and St. Louis. The markets with the greatest increase in affordability were Las Vegas, Providence, R.I., Boston, Chicago, and Cleveland.
- Do the panelists have any concern that the mortgage industry - from lender to underwriter and GSEs - may be more fragile since the Covid-19 outbreak? If yes, where is the weakest link at this time and how would you attempt to reinforce it?
I think everyone has been pleasantly surprised at how the housing industry rolled with the punches in a time of uncertainty and challenges. The industry leveraged new technology and identified ways to close real estate transactions with little or no contact. Some companies have invested in technology to let buyers see homes on-demand via video-chat tours or through a 3D tour, rather than attending the showing in person. Fannie Mae and Freddie Mac, both relaxed their requirements for in-person appraisals and a number of states already let a notary stamp a document electronically.
I will not call it a weak spot, but I will say that capacity issues are a challenge. The low rates have boosted demand, and one of the reasons why we see the spread between the 10-year Treasury and mortgage rates widen is because mortgage refinance application processing capacity cannot meet demand, so lender offered rates don’t follow the Treasury yield down one for one.
- How have unemployment projections differed from back in April/May? Also, are workers who filed for temporary unemployment going back to their jobs as projected?
While the labor market recovery was initially impressive, the more recent high frequency data is showing that improvement is slowing down substantially. The stalled or reversed economic reopening process in many states will have a direct impact on the labor market recovery.
In June, approximately 60% of unemployed workers were on temporary layoff, down from 73% in May. At the same time, the number of permanent job losses increased to 2.9 million, up from 2.3 million the prior month, indicating that some temporary job losses may be becoming permanent.