Federal Reserve Chair Jerome Powell offered a gloomy outlook for the economy, warning of the risks – and costs – of a prolonged recession without further government aid. Despite recent progress and signs of optimism, Powell said the outlook for the economy is extremely uncertain, and that while the policy responses thus far will support an economic recovery (whenever it begins), longer-term risks to the nation – and the lasting damage they may inflict – persist. In particular, Powell noted that prolonged periods of unemployment can inflict severe damage to a worker’s career and professional development, and that avoidable household and business insolvencies can weigh on growth for years. It’s clear that Powell remains extremely worried about what were once hoped to be temporary impacts morphing into longer-term damage, and that he believes the rebound will be more difficult and slower than most predicted at the onset of this crisis. Markets fell today after the remarks.
Once again, the Mortgage Bankers Association’s weekly report on mortgage applications was a rare economic bright spot, showing applications for for-purchase loans rose for the fourth straight week and are now just 9.5% below last year’s levels (up from a low of -35% just four weeks ago). Most major states saw strong increases in the seasonally-adjusted metric, with New York, California, Illinois, Florida, Georgia and North Carolina all seeing a weekly uptick of 10% or more. The steady increases in purchase application activity come at a time when the mortgage market remains very tight, and in some ways off-limits to borrowers seeking atypical loans and/or with less-than-optimal credit. The release also suggests that loosening economic restrictions and rock-bottom mortgage interest rates are helping the market meet pent-up demand for housing, despite enduring challenges.
As the share of outstanding mortgages entering forbearance grows, fears and questions are mounting around the status of those loans – and the structure of monthly payments – once they’re no longer receiving any assistance. Officials previously reassured borrowers that lump sum payments would not be required once a mortgage is no longer in forbearance, but people remained fearful of the fact that no official policies had been announced and began wondering if shorter-term payment plans would be required by lenders. Today, that changed. Freddie Mac and Fannie Mae each announced that borrowers will have the option to add up to 12 months of missed monthly payments to the end of their mortgage, keeping their monthly outlays the same as they were before their loan entered forbearance. Those wishing to implement more aggressive reinstatement or repayment plans will also have the option to do so. The announced plans should provide some solace for borrowers seeking clarity regarding their monthly payment, and will very likely aid in the economic recovery once it begins.
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