How Past Challenges Made Housing Ready for COVID
It’s sometimes said that people are too busy preparing for the last crisis to foresee the next one.
For the U.S. housing market and Fannie Mae, this maxim had particular resonance this past year. Born out of The Great Depression more than 80 years ago, one of Fannie Mae’s chief responsibilities is to stabilize the housing and mortgage markets in times of crisis so homeowners, renters, builders, lenders, and investors know the system can survive short-term shocks. The challenges posed by the COVID-19 pandemic put that responsibility to the test.
As the pandemic hit the U.S. economy one year ago, many people understandably worried about their jobs and families, and what would happen if they couldn't pay their mortgage or rent. Addressing these concerns quickly and effectively was paramount. And that’s where lessons learned from the 2008 financial crisis came into play. While we at Fannie Mae recognize that each crisis is unique, we adapted those lessons to the challenges presented by the COVID crisis.
Let me share three examples.
1. Speed matters – it matters even more in a pandemic
We knew that to support homeowners, renters, and the market at large, speed and agility were necessary. In fact, the need for action was even more urgent than in 2008, as COVID-19 engulfed the entire economy in mere weeks affecting millions of families at once, rather than rippling through different sectors over several years.
Fortunately, over the past decade, Fannie Mae made some significant changes in its business that made responding to crisis and market changes easier. Our investments in our digital capabilities, our continual improvement of our loss mitigation solutions and policies, and our strong relationships with mortgage servicers, allowed us to quickly set up large-scale interventions. We believe this mitigated the short-term harm to the housing market, particularly as we rapidly deployed forbearance and other assistance programs to help homeowners and renters impacted by the pandemic.
COVID-19 accelerated the industry’s drive toward an all-digital mortgage process, which is something Fannie Mae has been working on for several years. With social distancing in place, measures like desktop appraisals, remote notarization, and electronic signing of loan documents meant people could still close on their mortgages, and the housing finance system could continue to function uninterrupted. But the quick adoption of these innovations would not have been possible without our previous work and investment.
2. Public-private coordination is vital
As Fannie Mae CEO Hugh Frater said, “Our company will lean into the housing challenges brought by the pandemic.” That meant coordinating closely with industry stakeholders, particularly the Federal Housing Finance Agency (FHFA), our regulator and conservator. In the first weeks of the national emergency, we rapidly instituted new policies related to mortgage delinquency, forbearance, foreclosures, and evictions, a process that began even before the enactment of the CARES Act.
One of the most important and effective tools to help struggling homeowners in an uncertain environment is payment forbearance, which allows borrowers experiencing a hardship to temporarily suspend or reduce their monthly mortgage payments. Collaborating with servicers and FHFA, we made it possible for more than 1 million borrowers to take advantage of mortgage forbearance in 2020.
All the while, Fannie Mae was able to provide an extraordinary level of liquidity support for the market, which in turn provides homeowners and renters with affordable, sustainable housing. In 2020, we purchased more than $1.4 trillion in single-family and multifamily mortgage loans. Driven by 3.4 million single-family refinancings, which allowed homeowners to take advantage of low rates, 2020 was the highest acquisition volume year in our history. Nearly $750 billion of this volume came through our whole loan conduit, which is a vital tool primarily for small- and medium-sized lenders.
These assistance programs and the liquidity we provided were aided by our close working relationship with FHFA, the lenders and servicers we work with every day, and other industry partners. These relationships underpin the many reforms Fannie Mae undertook in the last decade and better prepared us to meet the challenges posed by the pandemic.
3. Information and outreach will determine success
Another thing we learned from the last crisis was that accurate information and outreach are critical to helping struggling borrowers and renters. Developing new solutions to help homeowners and renters does not really matter if you don’t have a way to let them know about the tools. We are continuously looking for new ways to ensure as many borrowers and renters as possible who need assistance are taking advantage of the relief options available to them. We launched the Here to Help campaign to educate consumers with the critical information they need to stay in their homes. While we estimate that, by the end of 2020, 94% of Fannie Mae borrowers most likely impacted by the pandemic had taken advantage of forbearance options, we continue to examine who is, and who is not, in forbearance to improve our outreach and implementation. We know that there are borrowers who can and should take advantage of forbearance plans but have not. We continue our work to try to educate as many struggling borrowers as possible about the relief options that we’re making available to them.
We are encouraged by the COVID response so far from lenders, servicers, and the market. But we know that a lot more work lies ahead as families begin to get back on their feet and recover from the financial impacts of the pandemic. Thanks to our extraordinary people and years of work to prepare, today’s Fannie Mae had the means to quickly pivot in the face of historic market upheaval. We are committed to continuing to fulfill this vital aspect of our mission.
David Benson, President
March 23, 2021