This feature originally appeared in the April issue of MReport.
The spread of COVID-19 has caused the U.S.— and the world, for that matter—to come to a screeching halt. The virus, which was declared a pandemic by the World Health Organization on March 11, has caused havoc on Wall Street, closed restaurants, bars, and slowed the economic activity to a crawl. There are currently more than 94,000 cases of COVID-19 in the U.S. and has caused more than 1,400 deaths.
In response to the disruption caused by the coronavirus, the Board of Governors of the Federal Reserve, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Conference of State Bank Supervisors, issued a joined statement in March saying financial institutions need to work to meet the needs of the consumers.
Now, the fear of recession is becoming a real possibility, as Mark Zandi, Chief Economist at Moody’s Analytics, told Bloomberg there is now a 60% chance the U.S. economy heads into a recession in 2020. “Housing is being buffeted by two gale forces moving in opposite directions,” Zandi told Bloomberg. “The question is, what’s the end result of all that? In all likelihood, the recession will trump the lower rates.”
Leaders from across the housing and mortgage industries spoke to MReport about COVID-19’s ripple effect on the stock market, investors, and mortgage rates.
The Industry Responds
President Donald Trump announced on March 11 that he imposed a 30-day travel ban on foreign nationals. “Smart action today will prevent the spread of the virus tomorrow,” the President stated. Insurance companies will also be waiving copayments on coronavirus treatments and extend payments for these treatments.
President Trump also announced his plan for workers who will need to be staying home.
“I will soon be taking emergency action, which is unprecedented, to provide financial relief,” President Trump said. “This will be targeted at workers who are ill, quarantined, or caring for others due to coronavirus.”
President Trump is also instructing the small business administration to provide capital liquidity to affected firms, and he stated he will be asking Congress to increase funding for this program by an additional $50 billion. “Using emergency authority, I will be instructing the Treasury Department to defer tax payments, without interest or penalties, for individuals or businesses negatively impacted,” the President stated.
Additionally, the President on March 13 officially declared a national emergency in response to the outbreak. This declaration allowed access to $50 billion of federal funding to be used for state and local municipalities to combate COVID-19. In response to Trump’s announcement, industry leaders reacted, assuring homeowners that they are keeping them in mind.
Dr. Mark Calabria, Director of the Federal Housing Finance Agency (FHFA), said the agency is working to provide support to homeowners impacted by COVID-19.
“To meet the needs of borrowers who may be impacted by the coronavirus, last week Fannie Mae and Freddie Mac reminded mortgage servicers that hardship forbearance is an option for borrowers who are unable to make their monthly mortgage payment,” Calabria said.
“For borrowers that may be experiencing a hardship, I encourage you to reach out to your servicer. The Enterprises and the Federal Home Loan Banks continue to provide support to the secondary mortgage market, and the UMBS market continues to operate at its normal level.” Leaders within the mortgage industry came together to support homeowners and address the impact the COVID-19 may have.
Under the direction of the National Mortgage Servicing Association (NMSA), leaders from across the mortgage industry are joining forces to create the COVID-19 Mortgage Industry Task Force (ITF) to coordinate on processes, procedures, and policies related to the crisis
Wes Iseley, Senior Managing Director, Carrington Mortgage Holdings, Chairman, NMSA, said, “It’s important during crises like this that our industry work together to help our customers in unison. It is our goal to work with the relevant government agencies in order to develop best practices that will enable all parties to get through this difficult period.”
More than 25 mortgage banks and nonbank servicers, legal professionals, and service providers will take part in the coalition. The U.S. Department of Housing and Urban Development (HUD) also announced provisions to combat COVID-19. HUD issued a waiver on servicing policy requiring mortgagees to establish in-person contact with borrowers during early-default intervention.
The Hon. Brian D. Montgomery, Assistant Secretary for Housing–Federal Housing Commissioner, said the policy is “not practical given the public health recommendations being disseminated by local, state, and federal government agencies to limit contact between individuals, in order to contain the spread of the COVID-19 virus.”
Courtney Thompson, SVP Default Mortgage Servicing, Flagstar Bank, told MReport that delinquency rates will “inevitably increase” but the real question is, “how much?”
“At this point, we are still in a close monitoring stage to determine the real extent of any impact,” she said. “At Flagstar, every department has comprehensive business continuity plans that are regularly reviewed and updated. So we have that locked down, and we’re ready to go. Still, servicers really need to answer the question: Do I have the infrastructure for my entire workforce to work remotely for say, 14 to 30 days, or even more?
Thompson added that if these issues can be addressed, the question becomes how does the industry define and manage productivity for an operation that runs on a workforce that is not traditionally remote.
RoundPoint Mortgage Corporation’s CEO Kevin Brungardt said of the virus, “During these uncertain times, with the novel coronavirus (COVID-19) pandemic, our primary focus is on protecting our people, our communities, our company, and our customers. As a company, RoundPoint is committed to minimizing the spread of this virus.”
Brungardt added that RoundPoint’s senior executive team created an Executive Task Force to create and implement measures to ensure a “safe business continuity environment.”
The task force has implemented suspension of all non-essential business travel, extended its work from-home policy to all team members if available, and badge access has been turned off for employees not authorized to work in RoundPoint buildings.
Additionally, the RoundPoint executive team meets at least three times a day to discuss the situation. Employees that are authorized to work in the building have their temperature taken prior to entering the building.
“The Senior Executive team will continue to closely monitor the situation to ensure the safety of our people, our customers, and the community,” he said. Michael King, VP Corporate Communications, Southwest Region of Wells Fargo, noted the company is “working on a daily basis” to support the needs of the customers impacted by the coronavirus.
“We are currently providing assistance including fee waivers, payment deferrals, and other expanded assistance for credit card, auto, mortgage, small business and personal lending customers who contact us, and we will continue to communicate with customers as the situation evolves,” King said.
He added that the Wells Fargo Foundation has committed up to $6.25 million in donations to support both the domestic and global response to COVID-19 and to aid public health relief efforts. Funding includes $1 million for the National Centers for Disease Control and Prevention’s Emergency Relief Fund and $250,000 to the International Medical Corps for their work in over 30 countries.
King said Wells Fargo will also donate up to $5 million at the local level to help address community-specific needs in the coming months.
“We recognize and appreciate the role of front-line health care providers as they apply their expertise on this fast-moving issue and care for the well-being of our communities,” King said.
Declining Rates in a Volatile Market
Along with housing, the stock market is among the sectors of the U.S. economy being impacted by the coronavirus. The Federal Reserve emptied the proverbial chamber in recent weeks, dropping interest rates by 50-basis points in March.
A few weeks later, the Fed took emergency action on March 15 and dropped interest rates even further—all the way to 0%.
“The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals,” said the Fed following dropping rates to zero.
“At issue is how much this inoculation can protect the economy and support the financial markets from a public health crisis and supply constraints radiating out from China,” Hamrick said. “While the statement from the FOMC says the fundamentals of the economy remain strong, central bankers are obviously concerned about developments yet to possibly unfold.”
Mark Hamrick, Bankrate.com’s Senior Economic Analyst said the Fed delivered “monetary policy medicine” that investors were looking for following the economic impacts of the virus. Hamrick said the drops by the Fed shows how serious the Fed believes the possible risks the virus poses to the economy. A result of falling interest rates: Falling mortgage rates. Freddie Mac’s Primary Mortgage Market Survey from March 26 reported the average 30-year fixed-rate mortgage came in at 3.50%.
Odeta Kushi, Deputy Chief Economist at First American, said the Fed’s actions should help bolster the mortgage market and keep rates low for the foreseeable future.
“This echoes 2008 when the Fed’s mortgage-backed securities buying spree increased demand for mortgage-backed securities at a time when investor demand was faltering. This, in turn, helped push mortgage rates down, enabling homeowners to lower monthly payments and encouraging investment in housing,” she said.
She added that actions by the Fed could cause mortgage rates to “flirt with 3%”.
“Buying a home is the largest financial decision a person will make, and that is predicated on strong consumer confidence,” Kushi said. “The Fed’s actions may lower mortgage rates and help existing homeowners save money through refinancing.
Potential homeowners benefit from boosted purchasing power, which should drive increased competition and escalate house prices. But, you need to have both—buying power and confidence—to make the decision to buy a home.”
Tendayi Kapfidze, Chief Economist at Lending Tree, however, said recent actions by the Fed “will have little effect” on the economy but will assist the recovery once COVID-19 subsides and activity returns to normal.
“The Fed’s goal appears to be to limit the damage to their financial markets during the period that social distancing will lead to widespread disruption to economic activity,” Kapfidze said. “So far they are having little success as the markets focus their concerns on government response and the delay in a meaningful fiscal response.”
Danielle Hale, Chief Economist, realtor.com, told MReport that lower rates brought on by COVID-19 have created a “mini refinancing boom.”
“Lower mortgage rates mean savings for buyers over what they might otherwise have paid. For an 80% loan on the typical home financed over 30-years, a buyer is looking at roughly $160 less as a result of mortgage rates now compared to where they were one year ago,” she said.
The Mortgage Bankers Association (MBA) reported mortgage applications rose 55.4% for the week ending March 6 and the expected volume of forecast origination is a 20.3% increase for 2019’s $2.17 trillion to $2.61 trillion in 2020. Refinancing originations are expected to double from prior objections—rising to $1.23 trillion.
The refinance index rose 79% from the prior week to its highest level since April 2009. It is also 479% higher than the same week in 2019. The purchases index increased just 6% from the previous week. Julio Gonzalez, CEO of ETS, said, as shown in the MBA report, that low rates will drive refinance and stimulate purchases. However, the rise of COVID-19 could also drive homebuyers to technology.
“Although physical visits to look at properties are down ... virtual visits are skyrocketing as brokers are driving purchases through technology. No doubt the virus will drive the new norm which will be more acquisitions through tech,” Gonzalez said.
Eddie Shapiro, CEO, President, and founder of Nest Seekers International, a residential and commercial brokerage firm, said while the travel, entertainment, and hotel industries are taking a hit due to the coronavirus, the real estate industry is “more and more attractive.”
“It is and always will be the right alternative if you are looking for stability, safety, and long term wealth presentation,” he said. “The cost of borrowing is incredibly low and seems to continue to go down even further. In addition, real estate holdings, in general, is not a volatile sector. It will continue to attract more participants who are looking for a safe haven in this environment and uncertain times.”
Stock Market Sell-Off
To say Wall Street has been volatile since COVID-19 made its way out of China has been understatement.
The Dow Jones recorded its worst day since 2018 on February 27, as it fell 1,190.95 points (4.4%). The S&P 500 fell 4.4% to 2,978.76 while the Nasdaq dropped 4.6% to 8,566.48. Both the Nasdaq and S&P 500 had their biggest one-day loss since August 2011 on February 27.
The S&P 500 closed below 3,000 for the first since October 2019 in February. Wall Street has continued to yo-yo ever since. On March 16, the S&P 500 fell more than 8% and the Dow Jones was down nearly 10% to just under 21,000.
The CEOs of the nation’s largest banks met with President Donald Trump following the markets’ collapse in March to discuss a plan of action. CitiGroup CEO Michael Corbat issued a strong statement to CNBC: “This is not a financial crisis.”
Bank of America CEO Brian Moynihan said banks are in a “great position” with plenty of capital and liquidity. He added the banks are looking to help all Americans and offer relief to consumers, especially to those who have been forced to be out of work due to the disease. Corbat added banks want to provide liquidity and there is a great deal of fear with recent talks of recession. He also said that the markets are currently in its “discovery phase” as it works to understand how the market is reacting to COVID-19.
“We’re here to help,” Corbat said. Hale said the long-term impacts of the disease depends on how it evolves. She added that coronavirus seems “highly contagious” and while mild in 80% of cases, the 20% of cases that are not mild is what is concerning. “In the long-term it seems very likely that scientists will develop treatments and possibly even a vaccine that will mitigate the concerns, but in the medium-term, we could see a slowdown in economic activity as sick and quarantined workers stay home which disrupts manufacturing and global supply chains,” Hale said. “In fact, anticipation of possible virus induced weakness was one of the factors that motivated the Fed to drop the federal funds rate by 50 basis points and less than 2 weeks later cut it all the way to zero while simultaneously introducing other easing measures.”
“The Business is the Same”
The spread of COVID-19 has disrupted all facets of daily life. Cities like New York, Los Angeles, and Dallas enacted measures closing all bars and restaurants in an effort to fight the virus. Another aspect that is being affected are businesses, as companies are allowing employees to work from home. The housing industry is not immune to this movement.
Austin Niemiec, EVP, Quicken Loans Mortgage Services (QLMS), told MReport that more than 90% of Quicken Loans’ 18,000 employees are working from home—including himself. Niemiec said they tested remote working starting on March 11 and by March 13 all employees were remote. He added the transition “worked flawlessly.”
“We’re a forward-thinking technology company. A large amount of our team members already had the capability to work full-time from home or work from home as needed,” he said. Niemiec said Quicken Loans began planning for this two months ago, buying necessary equipment, and setting up employees that didn’t have remote capabilities.
He added the challenges they have encountered have been minor—shaky internet or phone connection—but they have been able to correct them quickly. He added that QLMS’ goal is to take care of its partners’ business and all the mortgage brokers it works with.
“The biggest threat to companies in the mortgage industry is the technology that relates to the infrastructure of getting loans closed,” he said. “Loans are a deadline business with rate locks and documents that expire. I think that would be the threat to any major mortgage lender—losing the infrastructure to close loans. That infrastructure is something we’ve taken more than three decades to build, and it is running as smoothly as you can imagine.”
One of the problems that could arise would be from forces outside of a company’s control, such as verification of employment.
“There are some employers out there that are shutting down, or municipalities or government entities that we need to call to verify employment. That might be difficult. Or verifying homeowners’ insurance could become difficult. Our system is set up for success. But some of those outside factors could become challenging,” Niemiec said.
While admitting working from home is running smoothly, Niemiec said it will take some getting used to.
“It’s definitely different. I’ve tried to keep the same rhythm and routine,” he said. “I wake up at the same time, shower, do my hair, get dressed. It’s clearly different, but once you dial in and start to focus on the business, it’s the same. Whether it’s at work or at home, for me, it’s serving people and solving problems, and that doesn’t change no matter where you are.”
Niemiec said the current plan is for QLMS employees to work from home until April 6. No QLMS employees have tested positive or been exposed to COVID-19. Allen Price, SVP, BSI Financial Services, said 95% of its workforce is working remotely, adding, “we have a very robust work-from home platform.”
“When it comes to borrowers, we want to make sure that we, as a servicer, are doing everything we can to keep people in their homes,” Price said.
Michelle Garcia Gilbert, Managing Partner, Gilbert Garcia Group, P.A., and Sapphire Title & Escrow Company, said the Florida Supreme Court sent out a notice that there is to be no in-person hearings.
She said her firm has been able to reset most of the in-person hearings to telephonic hearings but noted Duval County cancelled all court hearings for at least two weeks. Gilbert said that most judges are encouraging telephonic hearings but noted “all judges are individuals” and that some are still requiring in-person hearings.
She added that in those cases, her firm is using an appearance counsel to relay messages and appear before a judge. Despite not being able to appear in most courts, she said the spread of COVID-19 has caused limited disruptions in day-to-day operations. Another question for the courts is what judges will do and if judges can work remotely.
“There’s a lot of uncertainty,” she said. “While some courts have suspended proceedings all together, and others have rescheduled trials and evidentiary proceedings, many courts are accommodating telephonic hearings for continuity,” said Roy Diaz, Managing Shareholder, Diaz Anselmo Lindberg P.A. and Chair of Legal League 100.
“E-Filing continues to be operational, and phone hearings are expected to continue for a few weeks.” Gilbert added that she is currently still working in the office but all employees are equipped with laptops. More employees could be working from home in the near future. She added work on the backend can still be done as files can be sent electronically, but one of the biggest issues they are facing is mail.
“Who is processing mail?” Gilbert quipped, adding that they still have many clients that receive hard mail and sections of her work cannot be done electronically. “Hopefully the post office doesn’t close,” she said with a laugh. Jason Allnutt, CEO, Auction. com said the company’s first priority is “contributing to the nation’s effort to slow the spread of the virus.” He also noted that employees are working remotely and focusing on the needs of buyers and sellers.
“Additionally, we are fast tracking investment in the roll out of our national remote bidding tool, allowing our buyers the ability to buy from the comfort of their homes for both online REO and live Foreclosure Sales,” Allnutt said. “Our industry has an amazing history of rising to the challenges posed by regional and national emergencies. I have no doubt together we will rise to the challenges posed by the current crises.”
Is American an Investors Safe Haven?
Another uncertainty surrounding COVID-19 is a timeframe around any recovery, as nothing can be projected unless a vaccine is developed, Shapiro noted.
“As of now they still anticipate months … If we judge by the first couple of months of the magnitude and the response around the world we are probably looking at years before it will stabilize,” Shapiro said. “You have two battles going on, one is the actual lockdown and physical loss of business and two is the public image battle. This is hurting the China brand in so many ways and will probably for a very long time.”
However, one thing he is certain of is that the coronavirus could lead to more investment from Chinese buyers in the American real estate market. Shapiro said Chinese investors have a lot of relationships within communities that draw investments near various “Chinatowns” in core cities.
“There is a bit of a herd mentality that is mostly based on referrals and confidence within the community, so you have concentrations in New York, Los Angeles, and San Francisco, but also markets like Vancouver, British Columbia,” he said.
The possible growth of Chinese investors into a housing market that is already starving for inventory may not be ideal. The National Association of Realtors recently reported that total housing inventory, while up 2.2% in January 2020 from December 2019 to 1.42 million units, is at its lowest inventory level since 1999. Shapiro, however, said “we only benefit” from an influx of Chinese investors.
Hale said Chinese buyers represent the largest share of foreign buyers of U.S. residential real estate. She also said they’ve faced headwinds in recent years from capital controls in addition to rising home prices.
“The epidemic is likely to hamper their ability to participate in U.S. real estate in the short-run, but it may lead to more interest in the long-run as buyers may seek to be more internationally diversified,” Hale said. Hale, now speaking on American homeowners, said a house is generally the largest source of net worth for people, which helps homeowners rest easier when investments are fluctuating wildly.
“Making sure you have enough of a cash or near-cash emergency fund is a good practice and will help ensure you can make your mortgage and other payments even in the event of a disruption to income,” she said.
Shapiro said concerns over home prices go back to supply and demand, but warned that growing home values could continue. “With an influx of new buyers seeking flight to safety in the U.S., products will move quicker and will drive prices potentially higher, or at the very least, absorb any access that might be putting pressure on prices,” he said.
Chris Marlin, President of Lennar International, told CNBC in an interview in June 2019 that foreign buyers are looking to the U.S. residential real estate market for long-term, stable investments. Marlin said the consumer behavior from Japanese buyers is showing a trend of moving away from yield and focused more on stability and self-use.