Housing sector leaders acknowledge that some borrowers are still struggling to pay their mortgages after being hit by layoffs and other issues caused by the Covid-19 pandemic. Furthermore, the financials of many borrowers have since been affected by events such as natural disasters, rising inflation or job losses. That’s why industry leaders are working on new solutions for the loss reduction toolkit, including a successor to the COVID-19 partial claim options.
And this time, they also have to consider the scenario of rising mortgage rates.
“We know that loan modification as we know it in the Covid recovery model, like every other type of loan modification, depends on a rate and term. And we’re in a position right now where the rate isn’t helping us,” Julia Gordon, The federal housing administration (FHA) commissioner said during the week mortgage bankers association (MBA) Servicing Conference in Orlando.
In January, the FHA announced changes to its Covid-19 Loss Mitigation Toolkit. This will be available to all eligible borrowers, irrespective of the reasons for their hardship, 18 months prior to the mandatory effective date of April 30. Among other initiatives, the FHA increased the maximum partial claim amount from 25% of the mortgage’s unpaid principal to the maximum 30% allowed by law.
Gordon said, however, that the agency “isn’t done yet.” The FHA is developing a solution where borrowers can put partial claim resources into a reserve account and supplement mortgage payments over time.
A partial claim works like an interest-free loan that borrowers can use to get their mortgage current. The money is repaid after the final mortgage payment when the loan is refinanced or the property is sold. The proposal is to use the loan to lower the monthly payment of the borrowers.
“So, we can get borrowers with payment reductions – we know that works,” Gordon said. “When we look at our own internal data, and when we look at industry data, we know that the longer your payment shortfall, the less likely you are to default again, or will be more likely to succeed and stay in that house.”
According to Gordon, the FHA expects to present a request for information about the new partial claim option to the public “within the next few weeks.”
VA loss mitigation cascade
department of veterans affairs (VA) also recognizes the relevance of the Partial Claims Program and is studying ways to add options to its Loss Reduction Toolkit.
“We certainly feel that partial claims are a great program. Certainly, those options need to be available to borrowers,” John E. Bell III, acting director of the VA, said during the conference.
According to Bell, the VA is looking at it “from a different angle” to deliver it to borrowers.
The VA Partial Claims Program, which aims to help veteran borrowers impacted by the COVID-19 pandemic, was available from July 27, 2021 through October 28, 2022.
“The program was released so quickly that there were implementation pains,” Rita M. Falcioni, chief of debt management at the VA, said during the conference. “We’re really working to reduce the backlog,” Falcione said.
According to Falcioni, the program was temporary and the agency had no authority or funds to make it permanent, but feedback has been that the industry wants a permanent program.
injecting liquidity into the system
ginnie mae According to its president, Alanna McCargo, the plan is to provide more liquidity to the system to deal with the rising interest rate scenario.
“No one expected that we would come out of a pandemic event and we would be at this huge inflationary high interest rate. And they all happen fast. It was like bam, overnight, rates were up,” McCargo said. “It is a critical time to ensure that the system has the liquidity it needs to support it,”
According to McCargo, Ginny plans to provide something similar to the My Pass-Through Assistance Program (PTAP) that was available during the pandemic. The assistance program helped issuers meet their principal and interest pass-through obligations to investors. Issuers requested funds monthly to assist with the temporary financial effects of COVID-19.
“We did it because of monetary policy and interest rates at rock bottom,” McCargo said.
McCargo said: “Now, we don’t have a monetary policy that drives down interest rates, and we all know that. So it’s a really important time, as we look now going forward, that we have a PTAP or There are off the shelf opportunities like other advanced solutions. And we’re really working hard on how we’ll ever deploy something like that again.
