The Crisis and its Effect on Mortgages

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The COVID-19 global pandemic has continued to affect many sectors of human life. The reduced economic activities have led to different sectors to risk shutting down. For instance, in the prevailing state of affairs, a mortgage is somewhat of a gamble because the future remains uncertain for many people. The mortgage industry now relies on government interventions to survive.

In the US, the Federal Government intervened by supporting homeowners to avoid foreclosure. This move could have a negative outcome to the mortgage sector. Government involvement is the key to saving the industry. However, if borrowers continue facing financial problems, the industry would still be at risk of total collapse.

President Donald Trump appended his signature to the CARES stimulus bill, which provided 2.2 trillion USD. The bill contains a provision assuring homeowners with mortgages backed by the Federal Government could stop remitting their mortgage payments for up to one year if they are having financial challenges. Because of the new law, some mortgage lenders allowed their borrowers to discontinue payments.
According to housing experts, the borrowers could also face some hardships. For instance, borrowers in the process of applying for leniency may have to start all over again. In other cases, servicers could mistakenly report borrowers as delinquent on their mortgages even though their forbearance application was approved.

Furthermore, the challenges around servicing mortgages could make it difficult for Americans to get mortgages in the future. If stand-alone mortgage companies’ businesses collapse due to the pandemic, there will be a smaller number of options for Americans in the future.

In Canada, banks were instructed to defer mortgage payments for a minimum of six months. As a result, six major players announced that they would offer their clients a flexible way out, albeit on a case-by-case basis.
In a statement released by the Canada Bankers Association, the banks were willing to defer mortgages indefinitely for non-delinquent clients affected by the pandemic. Furthermore, they clarified that the moratorium should not be confused with “mortgage forgiveness” as all interests which would have been part of the postponed payments will be included in the outstanding balance of the mortgage.

However, studies have revealed that many homeowners’ long-term financial capability has not been affected by the pandemic. Potential homeowners are still in the market for new homes in several regions in the country.

In Africa, the situation is not very different in terms of the pandemic’s effects on the mortgage industry. Take Ethiopia, for instance, due to the shortage of housing units even before the pandemic struck, the government (FHC) decided to embark on a national housing project. Reports indicate that most mortgages are expensive, making them out of reach for the common man.

With the financial crisis hitting Ethiopians hard in the current situation, the industry has taken a hit. The government is relying on external financial support to help cushion the various sectors from collapse.

From now on, governments across the world will have to liaise with the mortgage providers to help the industry stay afloat. As economies start to reopen, Banks and non-bank mortgage providers will have to develop innovative ways of keeping the current clients and attracting new ones.