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House Financial Services Subcommittee Roundtable on the Effects of COVID-19 on Housing Markets

House Financial Services Subcommittee on Housing, Community Development, and Insurance

“Virtual Roundtable – Reviewing the Impact of the COVID-19 Pandemic on U.S. Housing Markets”

Friday, May 23, 2020

Key Topics & Takeaways

  • GSE Conservatorship: Fercho said that for the GSEs to exit conservatorship, they must establish a strong and credible capital framework that allows them to support liquidity throughout credit cycles. She said it is equally important to lock in key reforms put in place over the last decade such as fair pricing and market access for lenders of all sizes, that level the playing field and ensure continued access to liquidity in the market.
  • Mortgage Market: Fercho explained that the decision to limit the payment forward or advancing of the servicers before payment allowed for loans that were in those securities not to have to be pulled out, and that the GSEs would provide support after the servicers advance. She called this a critical step that will continue to ensure payments are covered and those loans are not pulled out of securities, adding that investors will be protected. In response to Rep. Brad Sherman (D-Calif.) and Luetkemeyer, Fercho said providing a liquidity facility for servicers is critical to ensuring markets continue to perform. She noted it is important to establish the facility in advance of the need for it so access to credit is not impacted.
  • Forbearance: Fercho explained that the forbearance provisions of the CARES Act were implemented quickly to help borrowers, which did lead to initial confusion. She said the GSEs, CFPB and other agencies have been working to put out better and more consistent messaging to consumers about forbearance, and FHFA has also provided needed clarity to help borrowers understand their options.

Witnesses

  • Diane Yentel, President and CEO, National Low Income Housing Coalition
  • Kristy W. Fercho, Vice Chairman, Mortgage Bankers Association
  • Jenny Schuetz, Metropolitan Policy Program Fellow, Brookings Institution

Opening Statements                   

Subcommittee Chairman Wm. Lacy Clay (D-Mo.)

In his opening statement, Clay said the harmful effects of the pandemic on the physical and mental health of Americans can be made even worse when people are unable to pay their rent or mortgage, adding that the crisis is disproportionately affecting minority households. He noted that Congress acted quickly to pass the CARES Act, which included language on eviction moratoriums and mortgage forbearance. Clay said that the HEROES Act, recently passed by the House, provides more comprehensive relief for those struggling to afford their housing payment, landlords facing reduced rent revenue, and support for mortgage servicers that are providing forbearance and loss mitigation, noting it is important to incorporate lessons from the 2008 crisis in the response to this one.

Subcommittee Ranking Member Steve Stivers (R-Ohio)

In his opening statement, Stivers said that Congress has taken extraordinary steps to address this unprecedented public health crisis and the resulting impact on the economy, saying there has been a bipartisan consensus that both sides of the aisle need to work together to address the severity of this crisis. He noted that the CARES Act provided forbearance for mortgage payments and protected renters from eviction, as well as expanded and extended unemployment insurance so workers can still pay their day-to-day expenses, including their rent or mortgage. Stivers said there has been widespread confusion, however, about how forbearance works, and many felt they lacked clarity from their servicer about what they would owe at the end of the forbearance period, adding that the FHFA and FHA have worked to address this confusion.

Committee Chairwoman Maxine Waters (D-Calif.)

In her opening statement, Waters said that one of the most important things Congress can do to respond to the pandemic is to ensure people can stay in their homes, otherwise the country will face a wave of evictions and foreclosures that will make it more difficult for the economy to recover. She noted that the HEROES Act included measures that would go beyond the existing eviction and foreclosure moratoriums, including $100 billion in funding to support renters.

Testimony

Diane Yentel, President and CEO, National Low Income Housing Coalition

In her statement, Yentel explained that many low-wage workers are losing their jobs due to COVID-related, many of whom already struggled to pay the rent before the pandemic. She said that the patchwork of federal, state and local eviction moratoriums gives short-term relief to some renters, but also leaves many unprotected and creates a financial cliff when moratoriums are lifted and back rent is due. She noted that the country was already experiencing an affordable housing crisis before the pandemic, and while some communities have come together to provide resources and prevent some evictions, state and local moratoriums are rapidly expiring and courts are beginning to hear eviction cases. Yentel said the federal government must ensure that people do not lose their homes, saying that not only do evictions and homelessness have immediate consequences for individuals and communities, but they also create a spiral into poverty that is difficult to reverse. She said Congress should impose a national moratorium on evictions for the duration of the crisis as well as provide emergency rental assistant as proposed in the HEROES Act.

Kristy W. Fercho, Vice Chairman, Mortgage Bankers Association

In her statement, Fercho said that mortgage servicers have played an integral role in providing an unprecedented amount of payment relief to customers while simultaneously moving to digital, remote operations to ensure households can still access the mortgage market while practicing social distancing. She noted that since the beginning of March, Mortgage Bankers Association members have provided mortgage forbearance to more than four million customers, saying this is emblematic of the industry’s efforts to ensure that customers are well-served. Fercho said that as lawmakers continue to consider policies that impact borrowers and creditors, it is important to provide servicers with the operational flexibility necessary for them to address their customers’ unique financial experiences and develop solutions in real time to ensure residential, rental property and commercial borrowers each receive the most appropriate outcomes.

Jenny Schuetz, Metropolitan Policy Program Fellow, Brookings Institution

In her statement, Schuetz said that even before this crisis, more than 10 million households spent more than half of their income on rent, noting workers who have lost their jobs or seen their hours reduced are now struggling to pay for rent, utilities, and other necessities. She said that while suspending evictions may be appealing in the short-term, it is not a long-term solution and could lead to further economic harm for three reasons: 1) allowing renters to defer their current rent payments to a future date will most likely result in households accumulating debt they cannot pay off; 2) pausing rent payments will have harmful ripple effects throughout local economic as landlords become unable to pay mortgage, insurance, property taxes, and maintenance costs; and 3) eviction moratoriums may discourage small-scale non-professional property owners from becoming landlords at all, affecting the availability of rental housing. Schuetz said it would be more effective to continue to provide financial support directly to households and to provide grants or low-interest loans to property owners to help preserve and protect existing affordable housing.

Question & Answer

GSE Conservatorship

Clay noted that Fannie Mae and Freddie Mac are moving closer to ending their conservatorship, asking about the effects this could have on the housing and mortgage markets. Fercho said that for the GSEs to exit conservatorship, they must establish a strong and credible capital framework that allows them to support liquidity throughout credit cycles. She said it is equally important to lock in key reforms put in place over the last decade that level the playing field and ensure continued access to liquidity in the market such as fair pricing and market access for lenders of all sizes.

Mortgage Market

Rep. Blaine Luetkemeyer (R-Mo.) asked about mortgage-backed securities (MBS) and the implications if payments are not made. Fercho responded that they have received guidance that the decision to limit the payment forward or advancing of the servicers before payment allowed for loans that were in those securities not to have to be pulled out, and that the GSEs would provide support after the servicers advance. She called this a critical step that will continue to ensure payments are covered and those loans are not pulled out of securities, adding that investors will be protected.

In response to Rep. Brad Sherman (D-Calif.) and Luetkemeyer, Fercho said providing a liquidity facility for servicers is critical to ensuring markets continue to perform. She noted it is important to establish the facility in advance of the need for it so access to credit is not impacted.

Rep Scott Tipton (R-Colo.) asked for a forecast of the mortgage market over the coming months. Fercho explained that the market is robust, operating at historically low interest rates, and interest in homebuying is rebounding in many parts of the country.

Forbearance

Stivers asked about the forbearance process for homeowners. Fercho explained that the forbearance provisions of the CARES Act were implemented quickly to help borrowers, which did lead to initial confusion. She said the GSEs, CFPB and other agencies have been working to put out better and more consistent messaging to consumers about forbearance, and FHFA has also provided needed clarity to help borrowers understand their options.

Eviction Moratoriums

Reps. Bryan Steil (R-Wis.), Stivers and Waters asked questions about eviction moratoriums. Yentel said that the patchwork of state and local moratoriums is problematic and there is a need for a uniform national moratorium to ensure no one falls through the cracks. Schuetz explained there is a risk if landlords are unable to pay their property taxes, maintenance workers, and others who depend on that revenue.

Fintech

Rep. David Kustoff (R-Tenn.) asked how the pandemic will accelerate the development of fintech, particularly in the origination process. Fercho replied that there has already been an acceleration of digitization, especially in closings and remote notarization, saying it is critical to think about ways to meet needs via a digital solution. She added that a number of states have laws or temporary orders to allow remote notarization, and this is an opportunity to digitize mortgage platforms across the country to ensure consistency.

Other Solutions for Renters and Landlords

Asked by Reps. Emanuel Cleaver (D-Mo.) and Clay about other solutions for renters and landlords, Yentel explained that some renters have been able to make ends meet due to the stimulus payments while others have taken on debt via payday loans or credit cards. Schuetz said that some landlords are negotiating with individual tenants to establish a payment plan, reduced payments, or temporary deferrals, saying for many landlords a partial payment is better than no payment and finding new tenants at this time is difficult.

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