How COVID-19 has Impacted the Mortgage Industry in the Past Year
Written By: Joel Palmer, Op-Ed Writer
Although cases had been reported earlier in the year, it was one year ago this week that the COVID-19 pandemic started having a widespread impact.
As the virus spread, so did fear and concern. Not just about the virus itself, but about how containment efforts would impact the economy. Businesses had to close. Events were cancelled. Millions were suddenly jobless.
Within weeks, Congress passed the The Coronavirus Aid, Relief, and Economic Security (CARES) Act. Then President Trump signed the $2.2 trillion bill on March 27.
The bill offered a number of economic stimulus initiatives, including direct payments to individuals and businesses, unemployment benefits, and tax incentives.
Another key aspect of the CARES Act enabled mortgage borrowers to skip payments without risk of foreclosure or harm to their credit score. Borrowers who took advantage of this provision were also allowed to freeze the past due status of their mortgage at the level it was at when the act was passed. This meant that most mortgage borrowers who were current when the act was passed could skip future payments without showing their mortgage as past due in their credit report.
The Federal Housing Finance Agency recently released data showing the national impact of these components of the CARES Act.
According to the data, only about 1 percent of existing mortgages reported to credit bureaus were 30 or 60 days past due in the first quarter of 2020. It was over 2 percent during the period just before the CARES Act took effect. The first-quarter rate was the lowest in at least 20 years, according to the released data.
By comparison, more than 4 percent of mortgages had a 30 or 60 day past due status in the midst of the 2008 financial crisis.
The percentages over the past year for mortgages that were 90 to 180 days past due (0.6 percent) and mortgages in the process of foreclosure, bankruptcy, or deed-in-lieu (0.3 percent) remained flat.
“As a result of these trends, the median credit score of mortgage borrowers, as measured by VantageScore on borrowers of active mortgage loans, has actually risen slightly in 2020,” according to an FHFA blog. “In contrast, the share of accounts that were reported as more seriously past-due rose sharply in 2009 after the Great Recession and consumer credit scores also suffered.”
FHFA estimated that the past due rate would be about 3 percentage points higher at the end of October if waivers allowed under the CARES Act were not allowed.
“The long run implications of these changes may not be known until after the COVID crisis is over. In the interim, it is important to remember that traditional metrics of mortgage performance may not have the same interpretations as they have in the past,” FHFA said.
Altisource’s annual mortgage industry survey also revealed several impacts of the pandemic.
In the survey, about 27 percent of responding mortgage origination professionals said that “regulatory constraints” are the biggest challenge they face in today’s mortgage market. Another 24 percent cited technology.
A summary of the survey report stated: “Mortgage companies and vendors banded together to adjust processes so they can continue serving customers. At the same time, historically low interest rates led to an all-time high in mortgage lending for new loans and refinancing. While that was great news, many lenders have been unable to meet the massive demand due to capacity issues, which is why they are outsourcing and working with third-party service providers.”
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