How Different Housing Programs Are Affected by the COVID-19 Pandemic
COVID-19 pandemic has caused economic damage that it will take years to repair. Not only have lives been taken by this terrible disease but a large number of businesses have gone down. The realities of the COVID-19 pandemic, we, as a whole, are here are faced with this same situation and it is in our hands to physically see how broken our system really is, and how being separated into two grows to only be more difficult to get things done than being unified into one. Yet the last thing for ‘the Man’ to want is for us to come together, break it all down and make some sense of it. Bottom line-, we are impacted by this pandemic in all areas, and I am really here to discuss the adverse effects of how the COVID-19 pandemic impacts our housing finance system of operations.
National Flood Insurance Program (NFIP)
With the funding of many offices and programs being impacted on federal housing and mortgage programs due to the lapse of government funding, the Office of Management and Budget (OMB) requires each agency to have contingency plans in its place. As an extension was attached to the CR that Congress failed to pass, this means the duration of the pandemic, the NFIP will not be able to issue new or renew flood insurance policies. “Existing policies will not be affected until 30 days after their expiration date. Homebuyers will also be able to assume existing policies and the claims will be processed and paid as usual” states Wiskerchen.
The Federal Emergency Management Agency confirms that the agency and Congress “have never failed to honor the flood insurance contracts in place,” but FEMA will not sell or renew any policies for properties without the reauthorization, which has expired January 19. Though, FEMA confirmed NFIP will not be impacted since NFIP is funded by premiums, not tax dollars. Changes to flood insurance will take effect on October 1, will be implemented as scheduled.
Federal Housing Loans (FHA) and Department of Housing and Urban Development
During a pandemic, the Federal Housing Administration stops approving applications for housing loans, however, the HUD’s Contingency Plan states the FHA will endorse new loans in the Single Family Mortgage Loan Program, except for HECM loans.
Though, it will not make new commitments during the pandemic of the Multi-Family Program. The FHA will maintain operational activities including paying claims as well as collecting premiums. FHA contractors managing the REO/HUD Homes portfolio continue to operate as well. Loss mitigation programs will continue and operate. And due to short staffing, you can expect delays in FHA processing. For more information see the HUD Contingency Plan for Possible Lapse of Appropriations.
Fannie Mae and Freddie Mac will have continued normal operations during the pandemic, just as their regulator, the Federal Housing Finance Agency, since there is no reliance on appropriated funds. Fannie and Freddie are also expected to announce relaxed procedures regarding permit closings in moving forward without federal verification of both SSNs and IRS tax transcripts. However, lenders still must obtain federal verification of both before the GSE’s will approve loans for the purchase. And any relaxed requirements would not apply to loan modification re-financings.
Treasury The Making Home Affordable Program including HAMP and HAFA will not be affected as these programs are funded through Emergency Economic Stabilization Act in “which mandatory spending is not discretionary” says Kristin Rader from Keller Williams Sunset Corridor.
Department of Housing and Urban Development (HUD)
Nearly all of HUD’s employees were furloughed during the pandemic. Approximately 7,508 employees will be affected and only 289 employees are allowed to work, which is 96% of HUD’s workforce at home during the shutdown. In the Office of Housing, there normally are 2,506 employees, and during the pandemic, there are only 86. At Ginnie Mae, normally there are 143, and during the shutdown, there are only 14. The employees will continue to operate under an emergency exception and have limited staff available to manage business operations and answer any questions.
Ginnie Mae will operate as their role in the secondary mortgage market is essential to the market’s stability and liquidity, maintaining overall economic security.
The essential personnel working during a pandemic do not include office staff which usually issue conditional commitments, loan note guarantees, and modification approvals. So lenders will not receive approvals during the shutdown.
The U.S. Department of Agriculture will not issue new rural housing Direct / Guaranteed Loans. Scheduled closings of Direct and /or Guaranteed Loans will not occur, and scheduled closings of Guaranteed Loans without a guarantee issued previously would be closed at the lender’s own risk. When a lender received a conditional commitment from the Rural Development office, the lender may proceed to close these loans during a pandemic. A conditional commitment is good for 90 days and is given to a lender when a USDA Underwriter approves a loan. And if the commitment was already issued with funds set aside, the lender may close the loan at its leisure. When Rural Development has not previously issued a commitment, the lender must wait for funding legislation to be enacted before closing a loan.
Note. The traditional definition of “rural” for qualifying communities for assistance will be in effect and continue during a COVID-19 pandemic.
The VA loan guarantee program will remain operational, and the VA has determined that housing is an “essential service.” In addition, the VA has projected that “95.5% of VA employees would either be fully funded or required to perform excepted functions during a shutdown” (Obtain the VA Contingency Plan for more information), according to the Local Records Office.
VA medical facilities and clinics remain fully operational. VA call centers and hotlines cease to function, including Veterans Benefits Administration public contact services. In 2013 the 16-day shutdown had stopped progress in reducing veterans’ disability claims which previously had been at a rate of almost 20,000 claims/ week. In addition, many veterans lost access to vocational rehabilitation as well as educational services.
Internal Revenue Service (IRS)
The IRS also closes during the COVID-19 pandemic and suspends all the processing of all forms, including requests for tax return transcripts (Form 4506T). These forms are required for loans through the FHA and VA. Loan originators are adopting revised policies, and allowing for processing and closings with income verification to follow, as long as the borrower has signed Form 4506T requesting tax transcripts. Loans requiring Form 4506T Fannie Mae and Freddie Mac expect to adopt relaxed provisions allowing closings subject to tax transcript verification before GSE’s purchases the loans.
Social Security Administration (SSA)
The Social Security Administration suspends most customer service functions and according to the SSA Contingency Plan, verifying Social Security numbers through the Consent Based SSN Verification Service is also suspended. During the COVID-19 pandemic, recipients will still receive their Social Security and SSI checks. Approximately 60,000 Americans apply for Social Security cards on a typical day and may need them in order to start a job, take out a loan, open up a bank account, or conduct other financial transactions. “During a shutdown, no Social Security cards are issued,” says Denny Heck, the congressman of Washington’s 10th district.
And further complicating for mortgage processing, IRS income verification policies vary among lenders with many choosing forbearances during pandemic subject to subsequent verification. Fannie and Freddie are expected to adopt new policies and allow for closing subject to subsequent verification before the GSE purchases the loan.
Department of Interior- Bureau of Indian Affairs (BIA)
BIA announced there will be no processing or recording of property transactions on Leased Indian Tribal Land during the COVID-19 pandemic.