Issue link: http://dsnews.uberflip.com/i/1513140
MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 64 December 2023 J O U R N A L veterans and their families," the Senators wrote in their plea to the VA. "With each additional day that passes, risks mount for borrowers who are facing foreclosure while they wait for a solution from VA." Just last month, Sen. Brown, who serves as Chair of the Senate Committee on Banking, Housing, and Urban Affairs, and Sen. Mike Braun, introduced new legislation, the VA Home Loan Aware- ness Act of 2023, to help inform veteran homebuyers of their eligibility for the VA Home Loan Program. The VA Home Loan Program serves as a tool for helping veterans and their spouses achieve the American Dream of homeownership—offering veterans perks for financing their home pur- chases, including no down payment, no private mortgage insurance (PMI), and oftentimes lower interest rates than conventional FHA loans. Despite these benefits, only 13% of veterans ever utilize their VA Home Loan benefit. Among veterans who choose not to use the VA loan when purchasing a home, 33% of them said it was because they were not aware of the program. This rate is even higher among surviving vet- eran spouses, as 46.3% said they did not know they were eligible for a VA Home Loan at the time of their purchase. CAN MORTGAGE FORBEARANCE HELP STABILIZE THE ECONOMY? A new commentary from the Joint Center for Housing Studies at Harvard University authored by Sean Lee and Omeed Maghzian, poses the question, "Is allowing borrowers to suspend mortgage payments an effective way to stabilize the economy during a recession?" To begin answering this question, they looked at programs started during the COVID-19 pandemic such as the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), and its effect on the labor market stability during the pandemic and subsequent recession. Overall, the authors found that those measures likely saved the economy and played an important role in boosting local demand during the following eco- nomic recovery. These findings are significant for several reasons—limited household liquidity can depress aggregate demand during economic downturns. For exam- ple, during the Great Recession, the wave of defaults following the housing crisis had destabilizing effects on both local and aggregate economic activity, which persisted for several years. Since then, policymakers and aca- demics have actively discussed how to best prevent defaults and stimulate con- sumption among distressed borrowers to promote macroeconomic stability during times of crisis. Looking back, the CARES Act provided for federally-backed mortgage borrowers to halt their payments—most importantly without fees or penalties for 18 months—and upon exiting forbear- ance, borrowers were typically given the option to defer repayment of their missed payments until the end of their mortgage as a second-lien loan. Two distinct features of the mortgage forbearance program made it possible to identify the impact of the liquidity provi- sion on local labor markets. First, despite the broad eligibility criteria, enrollment in mortgage forbearance was not automatic; households had to request forbearance. As a result, there were significant regional variations in the uptake of forbearance. Second, in contrast to other forms of fiscal policy, the implementation of the program was carried out by mort- gage servicers, who are responsible for collecting monthly payments and facilitating transactions with investors in mortgage-backed securities. The authors found that there were significant differences in mortgage servicers' propensity to provide forbear- ance. Using loan-level data for govern- ment-sponsored enterprise mortgages, they further showed that these differenc- es cannot be fully explained by observ- able loan and borrower characteristics. Rather, servicers differed by as much as 7 percentage points in forbearance provi- sion to observably similar borrowers. Notably, the authors estimate that during the 18 months following statewide business reopenings, a one percentage point increase in the forbearance rate led to an approximately 30 basis point increase in monthly employment growth in "nontradable" sectors (retail trades, accommodations, and food services). This effect is large enough to suggest that when it was widely available, forbearance helped stabilize local economic conditions during the pandemic-era recession. The authors further stated that households spent 67 cents of every dollar of liquidity provided through mortgage forbearance in the following year. Overall, their findings suggest that household liquidity provision through debt forbear- ance can be a cost-effective fiscal stabiliza- tion tool during economic downturns. FORECLOSURE STARTS ROSE IN OCTOBER, BUT REMAINED AT HISTORICALLY LOW LEVELS I ntercontinental Exchange, Inc.— better known as ICE—has again released its monthly report highlight- ing mortgage performance for October 2023, which overall found that foreclosure starts rose by 33,000 during the month to their highest level in 18 months. Serious delinquencies, or mortgages 90+ days past due, fell to 447,000, hitting numbers last seen during the 2006 calendar year. Loans that were 30 days late also saw numbers improve, the first of such im- provements in five months. Despite the improvement in delinquencies, foreclo- sure starts rose to 33,000 in October, hit- ting their highest levels in 18 months— while the number of foreclosure sales (completions) remained relatively flat. In addition, ICE found that active foreclosure inventory inched up 3,000 to 217,000 but remains more than 25% below pre-pandemic levels. While fore- closure starts rose in October, the near-