The economic hardships wrought by the coronavirus pandemic will be long-term, and millions of renters and homeowners alike could take a serious hit in the upcoming months, affordable housing experts said on a recent webinar hosted by Freddie Mac.

Despite economists’ more optimistic housing predictions for the year ahead, one panelist felt that the worst may still be yet to come.

“We’re going to be starting off 2021 in a very difficult place when it comes to a potential wave of evictions as well as a current growing forbearance pipeline and delinquencies,” said Alanna McCargo, Vice President of Housing Finance at the Urban Institute. “Both of those dynamics are going to be sort of the things that are front and center.”

McCargo explained that in order to prevent a foreclosure crisis, housing professionals need to focus on one priority: keeping Americans in their homes.

“That means we need to be thinking about, on the homeownership side, loss mitigation programs that work for long term,” McCargo said. “This isn’t a short term crisis like natural disasters. This is a long term recession and it’s going to have implications for quite some time.”

She said that housing leaders will need to dig deep to find solutions, such as keeping people in forbearance longer or working out longer-term solutions for borrowers exiting forbearance. Reducing payments as homeowners get back on their feet could be vital, she said.

“All of those things are going to be really critical in the loss mitigation realm, so keeping people housed will be sort of be priority one and of the most difficult challenges that we’ll all face,” McCargo said.

The latest data from the Mortgage Bankers Association shows Fannie Mae and Freddie Mac loans in forbearance decreased to 3.26% as of Dec. 6 – an 8-point improvement. Ginnie Mae loans in forbearance decreased 21 points to 7.68%. But despite these improvements, more borrowers are again starting to seek relief with new forbearance requests reaching their highest level since the beginning of August. Roughly 1.8 million homeowners were also seriously delinquent on mortgage payments in October, according to data from Black Knight.

One way to ensure borrowers are maximizing their options is to offer refinances as a form of mitigation.

“I think we should be thinking about refinancing as part of the loss mitigation toolkit,” McCargo said. “People are maybe not losing their jobs entirely but they’re losing some of their income. And these refinances would help, in some cases, families reduce their monthly payment in half. That’s huge.”

With interest rates hitting yet another historic low this week of 2.67% for a 30-year fixed-rate, according to the latest survey from Freddie Mac, refinancing a mortgage could allow borrowers to lower their monthly payment significantly.

Freddie Mac Chief Economist Sam Khater speculated on the panel that by refinancing, homeowners could potentially save hundreds of dollars on their monthly mortgage payments, calling it an instant “magical raise” to borrowers’ incomes. Nearly 20 million Americans could benefit from a refinancing, by some estimates.

But the affordable housing panelists also argued that much of helping Americans stay in their homes must be done at the regulatory level.

“Innovation is great, but we’ve really got to fix one of the major barriers to affordability and affordable housing, which is around local zoning and local land use restrictions, and those issues are very dynamic and they’re complex and they’re very different,” McCargo said.

Panelist Christopher Herbert, Harvard Joint Center for Housing Studies managing director, agreed.

“As much as I think there’s some really good promising models out there, I think there’s more attention needed on the regulatory side to make sure that these are the best interests of consumers as well,” Herbert said.

And while these affordable housing experts are bracing for a difficult year ahead, they remain optimistic.

“I am optimistic about the narrative and the story and the awareness of the need for more supply,” Khater said. “Because, in my opinion, I that not only is it the biggest obstacle for the housing market, but it’s the biggest obstacle that the economy faces because when we have demand going up and supply is fixed, prices obviously go up and it causes dislocation. It causes lower- literally causes lower economic growth.”

IDX Real Estate