11
APPLYING
PREVIOUS
LESSONS TO
MORTGAGE
SERVICING'S
COVID-19
RESPONSE
ere are similarities, but the current
downturn is different from the 2008 Great
Recession. Following 2008, the U.S. mortgage
servicing infrastructure was strengthened,
and now, according to Urban Institute, those
changes are going to be put to the test.
In a report, Urban Insitute's Karan Kaul
and Laurie Goodman examine how these
safeguards will protect homeowners.
e difference between now and 2008
is that homeowners have record levels of
equity in their homes. e ratio of total
mortgage debt outstanding to the value of
the US housing stock is at a record-low
36%, compared with 54% on the eve of the
Great Recession. According to Urban, what
homeowners need right now is immediate
payment relief.
Similar policies to 2008 are now being
implemented in response to COVID-19
including forbearance, but, as Urban notes,
if forbearance is not properly reported to the
credit bureaus, it is treated as delinquency.
To reach more borrowers, Urban suggests
expanding the LTV threshold for refinance
options, including Fannie Mae's High
LTV Refinance Option and Freddie Mac's
Enhanced Relief Refinance Mortgage.
"is is a balancing act," Urban notes.
"Expanding refinance eligibility will have a
negative effect on mortgage-backed security
prices, which will, in turn, raise rates to new
borrowers. But during a crisis period, such
action seems warranted."
While the loss mitigation toolkit we have
in 2020 is much more robust than what we
had in 2008, swift early intervention, even if
imperfect, is much more effective than delayed
actions.
"Although no one knows how serious the
upcoming downturn will be or how long it
will last, the need of the hour is to provide
immediate payment relief to the largest
possible number of borrowers," Urban adds.
"e lost opportunity has been to allow the
streamlined refinance programs to mostly
lapse, with no crisis-type provisions for
immediate restoration."
Journal
