Government aid is currently propping up the state and national economies, but experts fear a slower economic rebound could put the mortgage industry under stress.
As suddenly as the economy shut down in March and unemployment levels spiked, any recovery will likely occur in phases, experts say. And with the possibility of high unemployment continuing, the mortgage industry could see effects from the coronavirus pandemic lasting a year or longer.
While parts of the United States have started taking steps to reopen the economy, Massachusetts is considered to still be in the surge phase of the virus. Gov. Charlie Baker joined a consortium of Northeast states to develop plans for allowing businesses to reopen. But in a press conference April 21, Baker said his current focus was on stopping the spread of COVID-19, adding that he would work with government officials and business leaders on a safe approach to reopening the economy.
“The goal going forward, here, is going to be to establish prerequisites for when we believe it is safe and appropriate to open the doors, and then make rules and regulations and requirements and capacity to monitor around how businesses in Massachusetts can operate safely,” Baker said.
The sudden spike in unemployment has already – and not unexpectedly – affected monthly mortgage and rent payments. A survey by the Federal Reserve in 2018 showed that 40 percent of U.S. households could not cover a $400 emergency expense. Other studies show that anywhere from 50 percent to 78 percent of people live paycheck to paycheck.
Research released on April 22 by the Federal Reserve Bank of Boson’s New England Public Policy Center points to possible consequences for the mortgage industry.
According to the research, 64 percent of New Hampshire homeowners have mortgages, and 48 percent of homeowners live in a household with at least one person working in an occupation at risk for a layoff during the coronavirus pandemic.
Among Granite State renters, 97 percent have a cash rental payment due each month, with 44 percent of rental households having at least one member and 29 percent having all members working in a job that is at risk of being laid off.
The NEPPC study estimated that 18 percent of the state’s homeowners and 38 percent of renters could miss monthly mortgage or rental payments without government aid. These missed payments could total $68 million for mortgages and $57 million for rental payments.
Federal and state aid, including unemployment assistance and direct payments authorized by the CARES Act, could lower those missing payments to between 3 and 5 percent for homeowners and 8 and 13 percent for renters, according to the study.
Missed payments by renters could also affect mortgages, since a smaller landlord might have loans on both rental units and their own residence.
But even government aid might not be enough to help people meet their payments, said Ruth Dillingham, a consultant with deep experience in the New England mortgage industry. With some workers, including those in seasonal industries, having multiple jobs – and some pay reported on W-2 forms and others on 1099s – unemployment assistance might not reflect previous income levels, affecting payment ability.
At least for now, New Hampshire residents will remain in their homes thanks to Gov. Chris Sununu’s executive order putting a moratorium on evictions and foreclosures.
Even when the economy does reopen, social distancing guidelines could leave businesses serving fewer customers, Dillingham told The Registry Review, which in turn would require fewer workers. And those who took forbearance opportunities will need to consider impacts on the loan down the road, depending on the forbearance agreement with the lender.
Dillingham said she is looking at effects on the economy and mortgage lending for perhaps as long as 18 months. She said policymakers, government agencies and lenders have been working to help borrowers and recognize that most had the ability to repay loans before the crisis hit.
“Everybody’s just trying to do the right thing,” Dillingham said. “But you just keep hitting that wall that if there’s no income for three months, how are you going to get back on your feet?”
