COVID-19 Leads to Temporary Mortgage Policies and Decreased Market Optimism
Written By: Joel Palmer, Op-Ed Writer
Fannie Mae extended temporary policies enacted due to COVID-19 just as new research shows increasing reluctance to jump into home buying.
Last week, Fannie issued a Lender Letter to single-family sellers that provided updates to policies it enacted on March 31 in response to the pandemic.
The key update is that the temporary policies have been extended from May 17 to June 30.
Updates to the original March 31 letter include:
Requires lenders to confirm that a self-employed borrower’s business is open and operating within 10 business days of the note date.
Use of stocks and mutual funds for downpayments and reserves. Because of market volatility, there are temporary policies in place for using market-based assets. When used for downpayments or closing costs, evidence of the borrower’s actual receipt of funds realized from the sale or liquidation must be documented in all cases. When used for reserves, only 70 percent of the asset’s value can be considered and liquidation is not required.
There are also updates related to powers of attorney, remote online notarization and lender quality control requirements.
In the case of the above updates, lenders are encouraged to apply them to existing loans in process; however, they must be applied to all loans with application dates on or after Apr. 14, 2020 through Jun. 30, 2020.
The May 5 letter also included additions not included in the original March 31 letter. These include:
A reminder to lenders that unemployment benefits can only be used if associated with seasonal employment.
Clarification that income from furloughed borrowers is not eligible under Fannie’s temporary income policy.
A temporary suspension of representation and warranty relief for employment validation through the Desktop Underwriter validation service.
Provision that all loans must be purchased or securitized within six months from the first payment date.
Also last week, Fannie released its latest Home Purchase Sentiment Index.
After two consecutive months of large declines due to the COVID-19 situation, the April index fell to its lowest point since November 2011.
Fannie said that consumers are more pessimistic about buying and selling their homes than before the coronavirus pandemic. In addition, more consumers are reporting a decrease in their household income.
The percentage of Americans who say it’s a good time to buy a home decreased from 56 percent to 48 percent.
In addition, only 29 percent indicated in April that it’s a good time to sell a home, compared with 52 percent the month before.
“While consumers did grow more pessimistic in April about whether it’s a good time to buy a home, low mortgage rates remain a driver of purchase optimism,” said Doug Duncan, Fannie Mae chief economist. “We expect that the much steeper decline in selling sentiment relative to buying sentiment will soften downward pressure on home prices.”
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
