Wednesday, 08 April, 2020

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Policymakers ‘Learned Lessons’ from Great Recession in Stimulus Package


The U.S. Senate approved a $2 trillion COVID-19 relief package on Wednesday and is set for House vote on Friday as the federal government looks to combat the impact of the virus. 

The bill was approved in the Senate unanimously—96-0—and Senate Majority Leader Mitch McConnell (R-Kentucky) called the vote a “proud moment for the United States.” 

Cameron Beane, Head of Pricing and Secondary Markets for TD Bank, said the bill will help create “helicopter money” for millions of homeowners across the U.S. 

“More than 3 million workers lost their jobs last week, which is staggering. The package includes stimulus payments that will put cash in the hands of many of these workers to help make ends meet and to encourage spending to support the economy,” Beane said.” This type of disbursement is often referred to as ‘helicopter money’ and it is designed to boost consumer confidence and spending as well as mitigate loan losses and the decline of broader measures of health in the U.S. economy.” 

One of the largest portions of the bill is that Americans who earn $75,000 in adjusted gross income would get direct payments of $1,200 each and married couples would get $2,400 each. Single Americans making more than $99,000 will be phased out of the payment plan and $198,000 for couples without children. 

Tendayi Kapfidze, Chief Economist, Lending Tree, said the payments to Americans will be kept to help people meeting financial obligations, especially the more than 3 million who filed for unemployment. 

There is a big risk to our servicers from borrowers not sending in payments as they would still need to meet their obligations to investors,” Kapfidze said. “This is especially acute for non-bank lenders who do not have sufficient reserves in place. It was disappointing that the bill did not directly address this risk.

Beane added that the stimulus gives almost $500 million worth of “unleveraged” funding power to the U.S Department of the Treasury and Federal Reserve to support businesses. 

“This will have a measurable impact on keeping afloat many of the entities that support the housing market—loan servicing companies, payment processing entities,” he said. “They are the backbone of the housing market infrastructure, and they play a critical role in making homeownership possible.”

Holden Lewis, Home and Mortgage Expert at NerdWallet, said the federal government is making a “huge effort to prevent foreclosures brought on by COVID-19. 

“The $2 trillion rescue package adds $600 a week in unemployment compensation, which will help people who’ve been laid off pay their bills,” Lewis said. “On the other hand, a one-time check of up to $1,200 will not go a long way toward keeping people current on their mortgage payments.”

He added people with mortgages backed by the GSEs or the Federal Housing Agency (FHA) have been given foreclosure protection by the suspension of foreclosures and evictions. 

“These moves show that policymakers learned lessons from the housing crash when they were slow to offer forbearances and modifications,” Lewis said. “This time, they’re going to offer forbearances right away, and Fannie and Freddie won’t even require documentation of COVID-related hardships. Later, we’ll see how supportive they are to people who need mortgage modifications.”