5 mortgage-related policies that are in flux due to the coronavirus

July 29, 2020 7:05 AM

The standard prerequisites for home loans have been subject to several temporary exceptions in order to address the pandemic's impact — but the nature of that impact keeps changing.

As a result, many additional policy tweaks have been made, or proposed, to keep the U.S. mortgage market running smoothly. Some of those alterations may be reversed once they're no longer needed, others may result in permanent change.

From guidelines for remote appraisal alternatives to the way forbearance affects borrowers' ability to get new loans, here are five examples of mortgage-related policies that have been in flux since the coronavirus spread in the United States.

How forbearance affects loan sales

Forbearance requirements in the initial coronavirus rescue bill have had many ripple effects where policymakers needed to adjust everything from loan eligibility to repayment options.

Some trade groups and public officials are intent on pursuing additional changes to the temporary measures, especially regarding policies around what happens if a consumer makes a forbearance request after their new loan closes, but before that mortgage is sold to Fannie Mae or Freddie Mac.

Pre-pandemic, the government-sponsored enterprises and the Federal Housing Administration would refuse to buy or insure the mortgage involved in these instances, in order to discourage lenders from making loans at risk of experiencing a payment suspension.

But because the risk of forbearance has grown due to the coronavirus and related policies, the GSEs and FHA have responded with temporary measures allowing the government-related agencies to buy or insure these loans in order to limit the contraction in lending.

Those seeking further change to this measure are concerned that the relief being offered doesn't go far enough to encourage lending because price penalties or indemnification requirements involved continue to serve as disincentives.

Foreclosures and evictions

The initial foreclosure and eviction moratorium on federal government-related mortgages was set to expire in May, but has been extended multiple times.

In addition, various measures and proposals aimed at providing additional consumer protections have been launched at the state and local level.

For example: Two Democrats in California, Assemblywoman Monique Limón and Assemblyman David Chiu, are backing an eviction moratorium that is working its way through the legislative process. Should it pass, the rule could be influential given that it is a large state with particularly high importance to the mortgage industry.

Policymakers are continuing to watch how the pandemic affects regional and U.S. economies closely to determine whether they want to extend more foreclosure and eviction relief to consumers going forward.

When suspended payments should be reported as 'late'

The initial foreclosure and eviction moratorium on federal government-related mortgages was set to expire in May, but has been extended multiple times.

In addition, various measures and proposals aimed at providing additional consumer protections have been launched at the state and local level.

For example, a Democrat in California, Assemblyman David Chiu, is backing an eviction moratorium that is working its way through the legislative process. The rule also calls for one year of forbearance for loans on smaller properties upon request, regardless of whether they are U.S. government-related loans. That could help borrowers avoid or delay foreclosure.

Policymakers are continuing to watch how the pandemic affects regional and U.S. economies closely to determine whether they want to extend more foreclosure and eviction relief to consumers going forward.

Acceptable forms of notarization

An increasing number of jurisdictions were allowing the use of remote forms of notarization in originations even before the pandemic spread. Once the coronavirus became a concern, multiple government-related agencies made updates to their guidance to accommodate expanded use of remote notarizations in line with the need to social distance and work from home.

Experts think digital mortgage initiatives like remote notarization will become a more permanent fixture in the industry as a result, but several steps must be taken before they do.

Among the possible paths forward is bipartisan federal legislation that would pave the way for minimum interstate standards nationally.

Digital appraisals

A growing number of alternatives to in-person appraisals of a home's interior were accepted in certain instances pre-pandemic, and the temporary processing flexibilities put in place to address remote work have taken that one step further. Those flexibilities aren't designed to continue long-term, but they keep getting extended.

What this means for appraisal policies in the long-run remains to be seen and could be dependent on factors that include how stable home prices remain and how reliable remote methods of determining home values turn out to be.