Now that we are several months into the COVID-19 pandemic, sufficient data exists to analyze its effects on the mortgage market and draw conclusions on the impact this disruption will have on the marketplace for the rest of 2020 and into next year.
The mortgage market started the year with robust origination volume, investor appetite, an expanding credit box, and home price appreciation. The pandemic shifted the scene significantly, triggering steep mortgage rate declines, undocumented forbearances to mortgagees, and a freeze of investor appetite. The Federal Housing Finance Agency also released a proposed rule in advance of recapitalizing and potentially releasing Freddie Mac and Fannie Mae from conservatorship, which has widespread implications for the future of the mortgage market.
In this paper, Milliman’s Nate Gorst and Jonathan Glowacki discuss each development and also discuss the impact of these events on the mortgage and housing market.
In August, the Federal Housing Finance Administration (FHFA) announced an Adverse Market Refinance Fee of 0.50% applicable to refinance mortgages purchased by Freddie Mac and Fannie Mae (the Enterprises). The intent of the fee is to help buffer the Enterprises’ finance from adverse market conditions and to increase their capital positions as the FHFA prepares to release them from conservatorship.
The way this fee may affect the mortgage market and borrowers is not straightforward. In this article, Milliman’s Nicholas Beihoff, Ryan Lindsay, and Jonathan Glowacki provide clarity on the fee and its potential impact. They demonstrate how the fee will likely have a limited impact on borrowers looking to refinance their mortgages into a lower interest rate.
Ireland is in the midst of an affordable housing crisis.
Figures published by the Department of Housing, Planning and Local Government
show 6,497 homeless adults in late 2019 with a further 3,778 homeless children.
In total, 1,721 families were in emergency or temporary accommodation including
hotels, bed and breakfasts, hostels, and other temporary accommodation facilities.
In addition, a large number of people are in private rental accommodation,
relying on local authority assistance in paying rent.
A shortage of housing supply seems to be at the crux of the
problem, particularly in the context of increased demand arising from improved
economic conditions and an increased number of large multinational employers. Harnessing
the power of pooled investment funds could help alleviate this crisis while
also potentially providing returns to individual investors.
The proposed pooled investment fund would:
- Build a portfolio of residential properties,
through acquisition and/or development. Initially, it is likely that the focus
of the fund would be on purchasing residential properties, but development of
suitable residential properties would also be possible over time.
- Rent those properties on long-term secure
tenancies with transparent rules around rental increases either to tenants
directly in receipt of the Housing Assistance Payment or directly to local
authorities to supplement the local authority housing stock.
In this paper, Milliman consultants discuss the rationale for a pooled investment fund focused on social and affordable housing.