Mortgage Payment Relief, the Effects of Equity Increases, and an Extension of Alternative Appraisals

American Rescue Plan to Provide Mortgage Payment Relief

Last week, the current administration’s American Rescue Plan was passed in Congress and already the outlook on the housing market and mortgage industry is looking up. Of the $1.9 trillion package, $10 billion will be reserved to aid homeowners who are struggling with their mortgage payments and $100 million will be used for housing counseling. However, in order to qualify, homeowners will have to meet these requirements: “total household income cannot exceed 80% of the area median income; at least one household member must be at risk of homelessness or housing instability; and individuals in the household must qualify for unemployment because of the pandemic”. Priority will be given to those who have been unemployed for more than three months.

Cash-Out Refis Hit High in 2020

According to data recently released by Freddie Mac, Cash-out refinances increased 42% year-over-year in 2020. This rate of cash-out refinances hasn’t been since the financial crisis of 2008, but for very different reasons. A record decrease in interest rates and a record increase in average home equity spurred these refinances last year, with many people taking out money to support themselves during the pandemic, buying larger homes, or renovating their houses. Experts don’t believe that this surge in cash-outs would signal a decrease in home prices like it did following the financial crisis in 2008 due to the current housing shortage. However, homeowners who do cash-out should be aware of a potential increase in interest on their loan, as well as additional taxes that can result from the transaction.

Increase in Share of Second Home & Investor Mortgages

New data was released this week following last week’s announcement by Fannie Mae and Freddie Mac concerning new restrictions for mortgage lenders on investment properties. According to the survey, February saw a 9.5% increase in applications for a non-primary residence; a .6% increase from the previous month and a 37% increase from this time last year. Furthermore, the share of second home and investment property within purchase mortgages is up .5% from last month and up 4.1% from the national average of 2020. Experts are attributing this increase to the migration of homeowners from metro areas to more suburban locations due to the pandemic, and notoriously low mortgage rates last year.

FHFA Extends Relaxed Appraisal Verifications

Last Thursday, the Federal Housing Finance Agency extended alternative verification for employment and appraisals that were set to expire at the end of March. Originally designed to protect appraisers during the pandemic by offering alternatives to face-to-face interactions, the extended measures include alternative appraisals on purchase and rate term refinance loans, alternative measures for documenting income and verifying employment, and expanding the use of power of attorney. The alternative verification measures have been extended another month, to April 31st, but many believe that they could be extended further pending vaccine distribution and the severity of the pandemic at that time.

More Renters Become Buyers After Equity Increases

Many renters are becoming aware of the massive amounts of equity that homeowners accrued last year. The news has been filled with stories of homeowners who selling high and building equity, then turning that money into home improvement projects or financing other life events using cash-out loans. The average U.S. homeowner accrued $26,300 worth of equity last year alone; however, California residents accrued almost double that, with an average equity gain of $54,500. Millennials in particular have shown an increasing interest in homeownership over the last year, and according to CoreLogic (who performed the survey) CEO and president Frank Martell, more and more renters show an interest in becoming first-time homebuyers.

Image Courtesy of Realtor Magazine

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