An Artificial Housing Market?

The big news of the week is surrounding cash out refinances.  Fannie Mae and Freddie Mac stated they will not purchase a loan where the borrower is in payment forbearance.  This is an incredibly dangerous situation, so lenders recently added a new fee of 1% to be added to each cash out refinance to help cover the cost of those who are signing up for payment forbearance.  Given that the government offered this as an option to homeowners without having a clear plan as to who would pay for this and what the longer term impacts will be to those who chose to sign up.

Many are talking about the housing market and how Covid-19 impacts are not expected to stop the continued growth.  Although no one knows for sure, I can tell you that the current housing market strength is not real.  The only reason we are not seeing massive numbers of defaults is due to the payment forbearance program.  If every mortgage holder was expected to make their payment, the housing market would be in shambles right now.  Further, it is expected that 15% of all homes with mortgages will be in payment forbearance.  Think about that for a minute.  As you do, consider what will happen when the program expires and people are not only expected to start making their normal payments, but they will also have to pay back the amount that was deferred.  Further, will they be able to qualify for a new loan after having a payment forbearance on their credit report?  Do you think this will cause a financial issue for many?  Yes, me too.

Hopefully those of you wanting a cash out refinance have already locked.  For all others, we will maintain a locking bias.