Ed DeMarco on Biden’s plans for forbearance

Kelsey Ramírez: Hi, everyone. Welcome to “Mortgage Desk.” Today, you’ll be listening to an exclusive interview that features Housing Policy Council President and former director of the FHFA, Ed DeMarco. In today’s interview, Ed discusses the change in administration and what that could mean for forbearances and the mortgage market going forward. Thanks for being with us today, Ed.

Ed DeMarco: Glad to be here, Kelsey.

Kelsey Ramírez: So, we’re changing over to the Biden administration who’s appointing all of his people. It looks like everything is going pretty smoothly. The votes so far have been fairly bipartisan in getting his appointees in, but even if he does have some trouble, he does have the majority in the Senate right now.

So, as his people get kind of put into place, it looks like so far he signed an order directing HUD to extend the foreclosure memorandum into March 31st but these kinds of extensions, these short-term, one month out extensions is kind of what we’ve been seeing under the Trump administration so far, so it’s not too drastic of a change from what we’ve already been seeing. Do you think that they’re planning on taking any kind of more drastic action or do you think we’re going to see this continued one-month-at-a-time approach?

Ed DeMarco: I think with regard to the moratoria on foreclosures and eviction, I don’t expect anything drastic and I do expect that the continued extensions will be fairly time-limited, and there’s a couple reasons for that. You know, one is that, you know, the administration is also working very hard to get this pandemic under control to get the vaccinations rolled out and to start returning some things to normal. So that’s an obvious reason why.

Another is that there’s been tremendous effort put into assisting homeowners that have been affected economically by the pandemic, and, you know, those assistance programs are working. But for situations in which, you know, an eviction is being held up only because of the health issue, I think everyone’s looking at some point to…we need to start, you know, restoring that process.

So, you know, this has always been a question about balancing, you know, contracts and obligations with the realities of the health crisis. And the health crisis is going to continue to dominate as it should but, you know, as we look towards the next number of months, that’s starting to mitigate. If the medical steps are successful, I would expect then that we would start to see some resumption of this other more normal activity.

So, to your question, do I expect anything drastic? No. Do I expect there could be some continuations for limited amounts of time? Yes, I do.

Kelsey Ramírez: That makes a lot of sense. So, I guess, even the memorandums aside, you don’t think that we’re going to see any new courses of action as far as foreclosures and eviction. Do you think they’re going to continue to take the approach of just extending it as needed?

Ed DeMarco: That appears to be the case. If they do, I would hope a couple things. One that these various government programs, including the GSCE stay aligned on what those deadlines are. I mean, right now, I think that FHFA’s moratorium goes to the end of February and the government loan programs go to the end of March. It really would be helpful if they could stay coordinated on what these extensions are so that there’s one announcement and one timeline for all of that.

But the other is it would be helpful to actually have some encouragement to conclude, you know, processes where, for example, a property’s been abandoned. I mean, I know that it’s permitted, although there’s a couple of states that, you know, can be difficult in that way. But, you know, in certain cases where there really shouldn’t be, you know, an either economic or a health issue, it would be good for them to encourage those processes not being completed.

Kelsey Ramírez: Yeah, that makes a lot of sense. So, what about as we emerge from the forbearance period. I know there’s a lot of plans that Biden has put forth and obviously, they’re subject to getting through Congress, but what plans does the new administration have for helping homeowners as we do emerge from this forbearance period?

Ed DeMarco: I think, Kelsey, in the near term, they’re looking at two questions. The first is extending eligibility to apply for forbearance and the administration has already indicated an interest in extending the application eligibility through the end of September. And my understanding is that that is meant to roughly align with their anticipation of, you know, the vaccine rollout and the kind of timeframe to get most of the country vaccinated.

So that’s one thing. And we still are seeing families, new applications for forbearance. They’re not a huge number, but, you know, the economic toll of this pandemic is continuing to be felt in various communities and in certain industries. And so there are new applications for forbearance that are still arriving.

And then the other is we’ve got… You know, right now, we’ve got about let’s say 2.7 million families that are in forbearance, and the majority of those forbearances were put in place in March… I mean, March, April, May of last year. So, they’re getting close to the end of their one year, and so a question is being asked but is not answered yet is, does it make sense to extend the forbearance period beyond 12 months? So that’s being weighed as well.

So those are the near-term things. You also asked more generally, you know, the administration’s assistance for homeowners. I mean, longer-term, they clearly have an interest in promoting new homeownership. The President talked about, you know, downpayment assistance and tax credit and so forth.

So, I think we’ll see those issues emerge, you know, with policy discussions but probably not until later in the year. Really everything associated with the pandemic and the families that have been disrupted by the pandemic is where the near-term focus will be.

Kelsey Ramírez: Yeah, that makes a lot of sense. So, as we are moving through this, how are things going to look different, do you think, with Biden and his administration at the helm, then maybe it would have looked if we had seen a different outcome in November and Trump’s administration was guiding us through this?

Ed DeMarco: Well, in terms of the pandemic assistance to homeowners, I’m not sure I, you know, could conclude right now that things would have been much different if Pres. Trump had been reelected. I mean, the program of forbearance and the programs put in place to assist families out of forbearance, I mean, what their sort of post-forbearance situation would be was pretty well-developed, and I think had broad bipartisan support.

So, I don’t think that there would have been dramatic differences there. We may see the Biden administration want to lean harder into, you know, making sure that families that reach the end of forbearance are given every opportunity to stay in their home. But, you know, servicers are already geared that way. They don’t want to foreclose on folks. They want to find a way, you know, to make something work for families as they reach the end of forbearance. So, I’m not sure there would have been big changes with regard to the terms around the forbearance.

The Trump administration might have been less interested in extending forbearance eligibility or forbearance periods, but we really don’t know because the question hadn’t ripened before the election outcome was clear. So short answer is it’s not clear there would have been a huge difference.

Kelsey Ramírez: Okay. So, one difference that we have seen in this administration is it’s focused on housing discrimination. Pres. Biden has made it clear that that’s going to be one of his top priorities, and I think even his nomination for head secretary, he appointed Marcia Fudge, is… I mean, she’s been talking about that, how it’s going to be one of her priorities. So, how is that focus going to affect how the administration approaches not just forbearance but also just housing assistance strategies in general?

Ed DeMarco: Yeah. So, there’s no doubt that the new administration has a keen focus on the racial homeownership gap, that is the fact that majority families, white families have greater homeownership rates than most communities of color. And so that is a real priority and concern for them, and understandably we welcome that.

In terms of how does that translate into approaches with forbearance and housing assistance, I think it goes to the answer I gave to the previous question that there may be, you know, heightened attention. We’re wanting to make sure that every opportunity has been given to a family that’s in forbearance to be able to stay in their home when they reach the end of the forbearance period to find a successful strategy to allow them to keep their home.

Because as we know, you know, the pandemic is not… Well, economically it has affected communities of color harder and, when we look at forbearance as an example, we certainly have minority communities that have been, you know, hit really hard by this pandemic. And so, when they get to the end of forbearance, you know, not all those jobs have come back, and I think the administration is going to be really focused on it. We’re doing everything we can to help these folks maintain their homeownership. Because look, if we’re trying to improve homeownership rates and reduce that racial homeownership gap, we don’t want to, at the starting line, be, you know, seeing the gap actually worsen because of the pandemic. So clearly there will be a lot of focus and attention have we exhausted all reasonable possibilities to help folks preserve homeownership.

Longer-term in terms of housing assistance strategies that go beyond the pandemic, again, I’ve already mentioned the downpayment assistance and tax credit. I think we will see some other things like that clearly the administration is going to work on housing supply issues and try to work on improving the supply of affordable housing. So I think there’s another place where the new administration’s, you know, strategy to deal with the racial ownership gap, we’re going to start seeing it show up in some policy proposals.

Kelsey Ramírez: Yeah, and that really feeds into my next question. As we move beyond the pandemic and beyond foreclosures, forbearance, the Biden administration issued an executive order asking, well, everyone to examine different rules made under Trump, but he specifically asks HUD to examine decisions made by Trump that might affect housing discrimination.

I know there were some Obama era rules that the Trump administration rolled back while it was overseeing HUD. So, do you think we’re going to start seeing major rollbacks of the rules put in place under the Trump administration and kind of a return to those rules that we saw under Obama?

Ed DeMarco: I don’t think I would put it quite that way. So, Pres. Biden signed an executive order directing HUD to re-examine a couple of the, you know, major rules in this area that were promulgated in the Trump administration. So, you know, looking at disparate impact, looking at affirmatively furthering fair housing, these are going to get re-examined by HUD in the new administration.

It’s not clear that means simply rolling back to what the rule was pre-Trump administration or whether this is an opportunity to say, “Okay, whether because of Supreme Court cases or because of things we’ve learned, you know, maybe there’s a way of redoing these rules in a manner that better suits the view that the administration has about them.” But that’s not necessarily just a simple, “Repeal what Pres. Trump did and go back to where we were,” it’s actually an examination of what should these rules look like in going through the rule-making process to amend them accordingly.

I did think it noteworthy that the executive order was about examining these things. So, we’ll see exactly where that works out, but there’s no question that those rules, in particular, are going to come under some careful scrutiny and I certainly would expect the Biden administration to be making changes there.

You asked a question broadly. There are other things that were done during the Trump administration that actually frankly I hope that the Biden administration continues to work on and to improve upon. So maybe if I could take a minute and talk about a couple of those. For example, HUD over the last few years got bipartisan support in Congress for funding a technology modernization program. They called it Operation Catalyst, and it was meant to be a multi-year effort to modernize the technology infrastructure of the FHA program.

That work has been going on for a few years now. We’re actually starting to see the fruits of that modernization effort in the marketplace but there’s still a lot of work to do, and I certainly hope that, you know, on something like this, just improving the operational infrastructure of FHA, that the new administration comes in and keeps the momentum going and gets those projects finished.

Similarly, with Ginnie Mae. Ginnie Mae had a multi-year technology enhancement program called Ginnie Mae 2020, and again we’ve seen some things completed. Others are still in process. I hope the new administration comes in and really keeps momentum going and allows that modernization to get done.

I think the benefit of doing that is the new administration is clearly going to be focused on affordable housing, getting FHA and Ginnie Mae modernized, and improving some of the operational parameters their programs will make the FHA program, in particular, more attractive to lenders, make it more efficient and effective to participate in the program. That will lower the cost and those things combined will actually make the program less costly and more attractive and available to home buyers. So, I think that there’s a lot to be done that can continue work that started in the Trump administration as well. And I certainly hope on issues like that, that the income administration continues that work.

Kelsey Ramírez: Yeah, and I mean, again, given its focus on improving homeownership for minority home buyers or even for first-time homebuyers, those are the people who are using the majority of these FHA loans. So you know anything that can be done that makes that product more attractive to the industry as a whole would really benefit those segments that this administration is trying to target.

Ed DeMarco: That’s right.

Kelsey Ramírez: Well, thank you so much for coming on with us today. This has been really informative. And we will continue to keep this discussion open as HUD makes decisions and then as the new secretary is confirmed and we start to see movement in that space.

Ed DeMarco: Very good. Thanks for having me, Kelsey.

Kelsey Ramírez: Thank you.