The pandemic has all but frozen our economy. Record numbers are out of work and on unemployment. This article will look at how homeowners can get help and what is happening with the real estate market in the shadow of the coronavirus.
Help for Financially-Distressed Homeowners
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act became law. It included immediate protections against foreclosure for both private homeowners and multifamily property owners. It also provided a mortgage forbearance period for these homeowners.
Foreclosure Moratorium under the CARES Act
Under the CARES Act, servicers of federally-backed mortgage loans may not take foreclosure-related actions through May 17, 2020. Fannie Mae and Freddie Mac subsequently instructed servicers to suspend foreclosures through June 30, 2020. During this period, homeowners with federally-backed mortgages or Federal Housing Administration (FHA)-insured mortgages cannot be sued or evicted and the home cannot be sold.
Many states have also taken additional actions to protect homeowners, such as extending the deadline to redeem the property from property tax foreclosure or placing a moratorium on sheriff sales.
Mortgage Forbearance under the CARES Act
Forbearance for Private Homeowners
Section 4022 of the CARES Act provides a 180-day renewable forbearance period for homeowners with a federally-backed mortgage who requests it in writing. “Forbearance” describes the lender’s agreement not to start foreclosure proceedings if the monthly mortgage payment is not made during that period. Interest will continue to accrue on the mortgage, but no additional fees can be imposed.
Homeowners who are experiencing financial difficulty during the COVID-19 health emergency can send their lender a written request for forbearance for that reason. When the 180 days pass, if a homeowner still cannot make mortgage payments, they can request a 180-day extension. Lenders must grant homeowners’ requests as long as the request states that forbearance is needed due to economic hardship caused by the pandemic.
Forbearance for Multifamily Property Owners
Owners of multifamily properties having at least five living units who have with federally-backed mortgages can also request forbearance if they are experiencing financial hardship due to the pandemic. To qualify for forbearance, such property owners must have been current on their mortgages as of February 1, 2020. The initial forbearance is for 30 days, and after the 30 days pass, the property owner can request up to two 30-day extensions.
Again, lenders and servicers require a written request for forbearance.
Getting a Mortgage During the Pandemic
Mortgage interest rates are lower due to COVID-19 for a couple of reasons. First, the Federal Reserve has cut interest rates twice since emergency measures were taken to contain the coronavirus outbreak. These brought the yield on Treasury bonds to almost 0 percent. The stock market crashed, causing investors to sell stock and buy bonds. Increased demand for bonds makes them more expensive to acquire, and the higher the cost of the bond, the lower the yield. Lower bond yields usually mean lower mortgage interest rates, and that is what we are seeing now.
Even though mortgage rates have dropped somewhat, it is much more difficult to qualify for a first mortgage or a refinance right now because lenders looking to minimize risk are raising the bar for borrowers to qualify. For example, JPMorgan Chase now requires that borrowers have a 700 credit score and a 20 percent down payment on a home.
Coronavirus and the Housing Market
The pandemic hit just as the real estate industry was gearing up for its busiest time of year – spring. Job loss and the stay-at-home orders prompted many would-be sellers to pull their homes from the market, and many would-be buyers to adopt a wait-and-see approach.
According to Zillow, inventory is down about 20 percent from last year at this time, as of the week ending May 9. Pending sales are down more than 10 percent, and new for-sale listings down by about 25 percent. Low inventory usually means higher demand and higher prices. However, the pandemic economy is forcing would-be buyers to stay home or stay put, because of job loss or reduction and lack of stability for those who are working. Would-be sellers are waiting to list their homes until they perceive it is safer.
Still, values are still up 4.3 percent from this time last year. The National Association of Realtors reported that sales of existing homes plummeted in April and home prices increased. And some recent data suggests that demand for real estate is on the rise.
One segment of the population that is willing to shop for a new home are those hoping to flee urban areas, where the population is densely concentrated and infection is more likely to spread. Another segment is comprised of urban dwellers who currently live close to work to avoid a long commute. Now that they are working from home and maybe for the foreseeable future, they feel free to move outside the city.
In any case, suburban and rural properties are perceived as safer, in terms of contagion, and as offering a better quality of life, with less traffic, noise, and cleaner air. What’s more, the price per square foot of these types of properties is often a fraction of similar square footage located in a city. For these reasons, properties located well outside densely populated urban centers have seen somewhat of a steady increase in interest, if not actual sales.
As for how buyers and sellers are complying with social distancing mandates, real estate agents have had to get creative, often opting for a virtual, remote showing over bringing strangers into sellers’ homes.
Forecast for the Real Estate Market
Times are uncertain. While elected officials contemplate another aid package for businesses and individuals both, the continuing spread of the coronavirus indicates that our economy and will lack stability for some time to come.
When it comes to real estate, one of life’s largest investments, most buyers and sellers are understandably pulling back and playing it safe. And only those who are credit-worthy and have the down payment can really take advantage of low rates caused by the pandemic.
About the Author
Veronica Baxter is a legal assistant and blogger living and working in the great city of Philadelphia. She frequently works with David Offen, Esq., a busy Philadelphia bankruptcy lawyer.