2020 has been a rollercoaster for aspiring homeowners.
On the one hand, mortgage rates have dipped to historic lows, making homebuying more affordable than its been in the past eight years. However, lenders have tightened their standards in the face of record unemployment, meaning buyers must be prepared to offer larger down payments.
Fortunately, down payment assistance programs have remained a reliable source for homebuyers throughout the pandemic, according to Down Payment Resource’s latest report released on Thursday. During the third quarter of 2020, 81 percent of the nation’s 2,340 assistance programs had funding available.
City and county programs experienced a slight dip in funding, DPR explained, but state-level housing finance agencies have remained robust and even increased their level of service.
“The last several months have been a tumultuous time for the mortgage finance system and everyone who is involved with providing housing lending,” the National Council of State Housing Agencies Executive Director Stockton Williams told DPR. “There have been lenders who have pulled back from originating loans for low- and moderate-income borrowers for a variety of reasons, including general economic stress, or pivoting to do more business in refinances since rates are so low.”
“There is also a lot of concern, which, frankly, state HFAs share, about some of the actions [the] Federal Housing Finance Agency, Federal Housing Administration, Fannie and Freddie have taken and not taken,” Williams added. “[However], more often than not, we are hearing that state housing finance agencies are doing as much or more business than they were at this time a year ago, and in a number of cases, they are doing more.”
The report said the key to housing finance agencies’ success during this time lies in their access to CARES Act, Emergency Solutions Grant, HOME Investment Partnership Program and Community Development Block Grant funds. However, there could be a slight slowdown during Q4 as CARES Act funds begin running low.
“Many of these relief programs are leveraging CARES Act and ESG funds, but may also use any remaining HOME or CDBG funds,” the report read. “Any impact on down payment assistance [programs] will likely begin to trickle down later this year in the form of constrained DPA budgets.”
Meanwhile, the 32 percent of housing finance agencies that receive HOME and CDBG funds will receive a boost at the beginning of the year as U.S. Department of Housing and Urban Development has increased its budget for both grant programs.
“The good news is the House Appropriations Subcommittee on Transportation, Housing and Urban Development, and Related Agencies passed its fiscal year (FY) 2021 appropriations bill, which will significantly increase HUD funding for housing programs, most notably HOME and CDBG,” the report added.
Another tailwind for HFAs in the upcoming year comes in the form of declining forbearance claims. Although claims skyrocketed at the beginning of the pandemic, they’ve been on a steady decline since May.
“A key takeaway from this year’s National Association of Local Housing Finance Agencies’ annual conference was that it’s becoming apparent forbearance claims near the start of the pandemic were expressions of consumer caution,” the report said. “Claims have since slowed, and reports from May and June show monthly mortgage payments are being made.”
However, there are concerns about forbearances transforming into delinquencies and eventual foreclosures. As a result, DPA said HFAs are partnering with servicers and lenders to help down payment assistance program participants who are having a hard time resuming payments.
“HFAs are trying to work with their master servicers and participating lenders on flexibility with loan level pricing adjustments (LLPAs) and purchase timelines related to loans that enter forbearance,” the report concluded.