As SVP of Single-Family Portfolio Management at Freddie Mac, Kevin Palmer has broad responsibility for the Single-Family portfolio, including Freddie Mac’s guarantee book of business, pricing and analytics, servicing, and REO. He also leads Single-Family Credit Risk Transfer (CRT), including Freddie Mac STACR securitizations, ACIS reinsurance, Whole Loan Securities, and front-end risk transfer offerings. He holds an MBA in finance from Virginia Tech and a Bachelor of Arts in economics from Weber State University.
How do you view Freddie Mac’s role in supporting the housing market through the pandemic and now into our nation’s recovery period?
Palmer: This pandemic has been really difficult for all. One key role Freddie Mac plays, especially during times of stress, is to help provide liquidity and stability to the housing market. I think that support is one of the key reasons why housing has remained a bright spot during all these troubled times. Millions of homeowners were unable to pay their mortgages during this pandemic. Absent the support we’ve been able to provide, I think we may have had another crisis on our hands.
For hundreds of thousands of Freddie Mac borrowers who fell late on their mortgages, we were able to roll out a broad forbearance program. Forbearance is a way to provide a time-out, a period in which borrowers are not required to pay their mortgages. In fact, not only are they not required to pay their mortgages, but also they’re not reported delinquent to the credit bureaus, so the lateness does not impact their credit history. That gives them breathing room–time to get back on their feet again and in a position to be able to pay their mortgages again.
Forbearance was a huge step in providing needed relief; we’ve also looked at what the right exit strategies from forbearance may be.
How can borrowers gracefully go from a pause on their mortgage payments to paying their mortgages again without any issues?
Palmer: We’ve rolled out some additional programs such as Payment Deferral that essentially defers the amount of payments missed to the very end of their mortgages. This is all done interest-free, and they’re able to resume making their mortgage payments, which has been key to helping existing homeowners. We’ve also led a big effort to create broad awareness to homeowners about these relief options.
Often, when you’re unable to pay your bills, you don’t reach out immediately. We made sure that borrowers understood that relief was available if they needed it. Another key way in which we’ve supported the mortgage market is through new originations. When the pandemic hit, we looked across all our different policies and procedures and said, “We want to continue to support this market, but we want to do it in a safe way, in a socially distanced way.” So, we analyzed everything we had historically required to determine if we still needed those requirements and if we could adapt them in a creative way. We’ve seen a huge investment not only by us, but by many mortgage companies invested in digital platforms, and this has created an improved digital experience for many borrowers. We focused on investing in ways that have allowed more digital appraisals along with other measures to help streamline and automate processes, while still ensuring that the risk is being fully underwritten. That has allowed the mortgage market to continue to work and provide new mortgages for those that want to participate in this housing market.
What are some ways the mortgage industry should be preparing to assist borrowers as they exit forbearances and the foreclosure moratorium begin to lapse?
Palmer: As the pandemic comes to an end, many of these COVID-19 programs will also end. I want to mention that I think some things will not end. For example, I don’t see an end to the investments in digital platforms. Borrowers are now willing to use—and can more easily access—these digital platforms. I hope that much of that will stay since it will benefit us all. Think of forbearance; it is not something that we created during this pandemic.
Forbearance is something that we’ve had in our toolkit when we’ve seen natural disasters or wildfires. One of the reasons we were able to respond so quickly during this pandemic is because we were able to quickly adapt our existing toolkits, the ones that we’ve applied in very specific areas, and broaden them. To the extent that something in the future necessitates us rolling forbearance out again, we’ll be able to do so quickly.
Can you give us an inside view of how these homeowner options are performing in today’s market?
Palmer: Of the hundreds of thousands of borrowers in Freddie Mac’s portfolio that have started on forbearance, we’ve seen roughly two-thirds of them already exit forbearance. In the last couple of months, we’ve seen a huge improvement in several key indices. We’re seeing the economy open back up, the unemployment rate go down, and things are definitely moving in the right direction. We’re seeing more and more borrowers gracefully exit forbearance and sustain homeownership, which is so important.
We’re not out of the woods, but we’ve seen huge success so far. At the same time, we still have many borrowers still on forbearance, with most of them on it for close to a year. Their circumstances are probably more serious than the other borrowers that have already come off forbearance. So, the tools that worked for the first half of the borrowers might need to be different than the tools that we exercise for the remaining borrowers. We have options for them, such as our Flex Modification program, which not only allows them to resume making a mortgage payment but also allows a reduced mortgage payment for those borrowers that need it. Having our servicers/mortgage companies work with borrowers is key, and we constantly emphasize sustainable homeownership, encouraging borrowers to keep working closely with their mortgage companies. A mortgage company can advise borrowers on the relief options available to them and help them understand their options servicers so that, whenever we need additional tools to help support homeowners, we’re here, ready, and able to roll those out.