FHA braces for virus, warns of potential bottlenecks as demand grows

The Federal Housing Administration is making coronavirus adjustments while warning of possible delays as the industry anticipates a new wave of borrowing due to the Federal Reserve's latest policy measures.

The government agency — which is an arm of the Department of Housing and Urban Development — is allowing alternatives to face-to-face meetings related to early-payment defaults, for example. In doing so, it joins the growing list of federal and state officials temporarily changing policies for the coronavirus.

However, some limited in-person contact so far is still required in certain circumstances.

"The face-to-face requirement for FHA-insured mortgages under the Section 248 — single-family mortgage insurance on Indian reservations — is still applicable," according to an FHA bulletin issued Monday.

Separately, occupancy exterior inspections must still be performed, but no contact with the occupants is required.

Appraisals also remain a requirement, but appraisers are advised to incorporate prudent measures in line with public health guidance.

The FHA is poised to operate remotely "with as little disruption as possible in the event of office closures," but said there could be possible processing delays, particularly for Title 1 and manufactured housing loans.

Adjustments for remote work in origination operations could complicate mortgage lenders' efforts to handle what some anticipate will be a new surge in demand for loans following the measures related to securitizations and short-term rates taken by the Fed on Sunday night.

"Dramatic action by the Fed, lowering rates to zero, buying Treasurys and MBS, and encouraging banks to go to the discount window, will significantly reduce stress in the system. MBA expects these actions will lower mortgage rates, helping homeowners save money through refinancing, and thereby providing a boost to the broader economy," Mike Fratantoni, the Mortgage Bankers Association's chief economist and senior vice president, said in an email.

Servicing complications are likely to surface in the longer-term as the industry adjusts to an influx of distressed mortgages after a long period in which volumes were low.

For now, the GSEs and FHA are advising lenders to exercise forbearance options, state and local authorities on a case-by-case basis have been imposing moratoria on evictions and foreclosures, and housing advocates are pushing for a national policy.