Mortgage Connects an MGIC Podcast

Deconstructing the economic and social challenges facing the post-pandemic mortgage industry

July 28, 2021 MGIC MI
Mortgage Connects an MGIC Podcast
Deconstructing the economic and social challenges facing the post-pandemic mortgage industry
Show Notes Transcript Chapter Markers

Get an insider’s scoop on the distinctive economic and social circumstances and challenges facing today’s generation of homebuyers from Freddie Mac’s Danny Gardner. He discusses who the borrowers of the future are and what the growth in diversity of homebuyers looks like. We also reveal the impact of the “triple pandemic” and how its factors have disproportionately affected minority groups, as well as how individuals who took advantage of forbearance options during the pandemic may see their credit affected in the long-term.

Thanks for listening to Mortgage Connects, an MGIC podcast. If you have questions, comments, or want to get involved, send an email to mortgageconnects@mgic.com.

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Stephanie Budnik (00:03):
Welcome to Mortgage Connects by M G I C, bringing you the latest insights from top mortgage professionals around the industry. I'm your host, Stephanie Budnick, and today we'll be speaking to Danny Gardner. He's the Senior Vice President of Client and Community Engagement for Single Family Division. In addition to assuming sales leadership, Mr. Gardner is responsible for fulfilling Freddie Mac's community mission to provide sustainable home ownership education and financing to families who are traditionally underserved by the market. He's also responsible for overseeing Freddie Mac's delivery and performance against single family, affordable lendings goals, duty to serve regulation and access to credit activities in the F HFA scorecard. Welcome, Danny. We're so excited to have you today.

Danny Gardner (00:49):
Wonderful to be here. Thank you.

Stephanie Budnik (00:51):
Yes. We are looking forward to your insights on some of these industry questions we have. So the first one I actually wanted to start with were what trends are you seeing that we should take note of in the industry?

Danny Gardner (01:05):
Uh, sure. So I, I would say, you know, now that we've emerged from the pandemic, you know, things are not different than they were prior to that in that we've got substantial, uh, both demographic and generational changes going on, uh, in our country. And so we've tried to remain very focused on some of those trends, uh, at Freddie Mac. So, one, if you think about, you know, the way our, our country is organized in terms of, of the generations, uh, we, we think a lot about the baby boomers, right? Very large, uh, population of individuals, uh, who, who who are beginning to age. And so what we believe we will continue to see are many, uh, baby boomers start to downsize, uh, from their existing homes, or they will be working to retrofit those homes to extend their, uh, term in the home, Whether it's something that they need to accommodate for health issues, or maybe they want to have a caregiver live with them.

Danny Gardner (01:51):
Maybe it's a family member, or maybe it's professional caregiver. But we will probably see more modification of properties as a result of that generational change. Um, then there's the millennials, and as we witnessed as a result of the pandemic, uh, whereas many, uh, professionals have, uh, found it necessary to live within large urban centers, uh, we're actually starting to see that out migration into more suburban areas. And that's great because it's giving us more opportunities, uh, in the mortgage finance arena, uh, to support that, uh, migration by, uh, having populations move where there are more properties available. Uh, but we've been thinking a lot about what we call the borrower of the future, and we would define that as Generation Z, uh, specifically individuals who today, our ages 10 to 24. So we probably don't give a lot of thought on a day to day basis as lenders or other, uh, participants in the mortgage industry about, uh, people that are quite so young.

Danny Gardner (02:43):
Uh, but it's something we definitely want to keep our eye on because it is a large and emerging population. In fact, we believe by 2030, uh, that Generation Z will make up 30% of the workforce of the US population. Um, it's also the most diverse population we've ever seen in our country. Um, but the good news is this generation is very positive about the aspects of home ownership. In fact, um, the majority of, uh, respondents to surveys that we have been, uh, submitting indicate that, uh, they believe they will buy their first home by the age of 30. And as we know, on average, that is actually at the lower end. I think today the average is about 34. So that really speaks to, uh, their optimism and positivity. Also, the good news is 74% of this population, uh, by survey trust financial institutions. So, uh, for lenders and other professionals out there that seek to service this population, uh, they, uh, they, they trust the industry.

Danny Gardner (03:36):
They trust, um, the, the professionals. And so we will be able to provide that opportunity in the future as well. Uh, what's interesting, we also ask them the question of, uh, how have you, have you learned a skill, uh, from YouTube in the last, uh, uh, 12 months? Uh, 80% of respondents did indicate that they used YouTube as a resource for learning and education. But when we go back to our survey, when it becomes to home buying, they feel strongly that they would rather rely upon a professional who better understands, uh, that procedure than perhaps technology in which, you know, most people rely these days. Uh, also discontinuing to talk about this, uh, population a bit more. Um, you know, we have had in our country common misperceptions about down payment. What does it take to become a homeowner? How much money do you need to put down?

Danny Gardner (04:24):
Um, and as we've seen with surveys and generations past, the majority believe you need at least 20% down. It's also true that this group feels, uh, very fiscally responsible. So they want to actually try to save all of the money that they will need, uh, for their down payment. So what that says to us is that, you know, we have an opportunity to better educate them about home ownership in the future, about the fact that there are options that exist that are far less than 20%, such as a 3% down mortgage from Freddie Mac, combined with mortgage insurance from a company like M G I C. So, lots of education opportunity, uh, as this nascent, uh, generation starts to mature into home buying age. Um, and those are of course, things that Freddie Mac feels very strongly about is the need to educate people so that they will be prepared to make the best possible decisions and become sustainable homeowners.

Stephanie Budnik (05:12):
That, that was a lot of information about different borrowers and a lot of good things to think about. You know, you think about all of the individuals moving down in size. Um, my parents, for example, aren't, but they bought a second home now <laugh>. So, you know, just the wide range of things there. And the Gen Zs are a really interesting thing to think about. I made me laugh when you talked about YouTube. Cause I can't tell you how many times, at least I've Googled how to do, how to do something. Uh, not that I fall into that group, but I'm glad they're gonna rely on professionals for the home ownership aspect of it. Um, you talked about 30% being diverse. Do you foresee that creating further obstacles for anybody or being a more welcome change, Do you see anything coming out

Danny Gardner (05:56):
Of that, that, um, yeah, so let me speak to that. So first of all, let me clarify. It wasn't that 30% were diverse. I indicated this was going to be the most diverse, uh, generation. Oh, yes. Okay. Sorry. Yes. No, that's okay. And I forget the statistics. Statistics, I apologize. But I do know there have been projections that, you know, many of what we have deemed as traditional minority populations, such as Hispanics as an example, will actually, uh, be reaching majority probably near 2050 as I, as I recall. So we are seeing a lot more diversity in this generation. But it goes back to, to your question, which is to say, you know, how are, uh, how does that reflect upon opinions and attitudes about a borrowers of the future, um, as they emerge from this, uh, pandemic and, you know, want to reach out and seek home ownership?

Danny Gardner (06:44):
So, uh, first of all, it should be noted. Um, I, one of my favorite papers, I should say, that came out during the pandemic was actually from the, uh, Harvard Joint Center for Housing Studies, and there was a white paper identifying the Covid 19 pandemic as a triple pandemic, especially when it pertains to communities of color. So, when we think about the occupations where individuals were not as likely to have an opportunity to work remotely, we see a large share of those roles being held by persons of color. Then as a result, they're either more likely to lose that employment because whatever service being provided, think of your restaurant waiters, uh, baggage handlers, other occupations, you know, in some of the service industry, uh, as patrons, you know, were fearful of that interaction, then those jobs, uh, went away, right? Mm-hmm. <affirmative> for instances where those jobs did not go away than those individuals had the, um, had the, uh, occasion to be more exposed to the virus.

Danny Gardner (07:42):
So then as a result, we see more of a health impact, uh, into those communities as well. And then, you know, logically, So if it's an economic impact coupled with a health impact, then housing insecurity also, uh, it could be a potential risk, uh, to these communities. So that's the thing we wanna be mindful of as we think about, uh, the diversity. I know not only of generation Z, but of our country and the impacts of the pandemic on specific communities. We also, as I mentioned, do a lot of surveying. And what we noted throughout the pandemic was an range of somewhere between 31 to 44%, depending upon the timing of the surveys. We noted that many people indicated that their savings had declined in some cases quite dramatically. Now, I've seen other, um, studies, uh, from our office of chief economists showing that the overall savings rate in America has actually increased or improved, uh, through the pandemic.

Danny Gardner (08:35):
People have become more conservative with their spending, but again, for lower income populations, uh, communities of color, you know, there, there, there's a much different story. And so that impact is there on their, uh, ongoing, uh, capabilities, especially when we think about the opportunity of saving for a down payment. Uh, we had an issue, uh, into the pandemic. And even though we've seen out migration, you know, as a result of the, uh, individuals moving from urban centers out into communities, um, the trend of rents increasing has also been quite strong over the last, uh, several years. So that's more pressure on individuals who may seek to become homeowners in the future, just having the means, again, saving, saving that all important, uh, down payment. Um, I would comment on the fact also, um, as we've now, uh, you know, gotten vaccinated, and if you're like myself, you know, I, I'm, I'm on a visits, I'm on a visit to, uh, Texas right now, visiting friends and family and, you know, took a, took a flight to get here, going into restaurants, but you can still see all around you.

Danny Gardner (09:33):
There is a shortage of employees in the necessary labor to be there. So again, we have people still sitting on the sidelines. They've not reemerged in the workforce, therefore, they're not gaining that employment and income in order to hopefully take advantage of a home ownership. Uh, we can't forget the fact that childcare is not as available as it was pre pandemic. So that's one major reason that we see individuals remaining to sit on the sideline. And then lastly, housing supply. Um, we were already facing a housing supply shortage, uh, before entering into the pandemic. Uh, our, our economist at Freddie Mac estimate that we are still now about 3.8 million homes short of meeting the demand, uh, of, of individuals out here out there who are seeking to buy, uh, many of our brethren in the industry who, who work with families and consumers every single day hear the story about the, uh, massive competition for the few available homes, uh, that are out there.

Danny Gardner (10:24):
So that's driving prices up there. So my point in all of this is that as we think about our outreach, uh, to communities, the aspect of promoting first time home ownership, there being more diversity in the borrowers of the future, but then, but the many of those communities being, uh, dramatically impacted by the pandemic and the recession as a result, uh, we're going to see even more challenges for families of the future and trying to attain that, all important home ownership where they can create that, uh, ongoing generational wealth for themselves and for future generations.

Stephanie Budnik (10:59):
Speaking of like the pandemic in itself and individuals that may have be facing challenges in regards to their credit, who took advantage of the Forbearances options during the pandemic? What long term impacts do you think that that might have on individuals that took advantage of these types of resources?

Danny Gardner (11:19):
Sure. So, hopefully very minimal. Um, we, we've worked very hard, you know, throughout the pandemic, you know, working in partnership with the Federal Housing Finance Agency and even our, our BRE agency, Fannie Mae, uh, to come up with broad based solutions and tried to help address, uh, the crisis. And of course, we had the CARES Act, you know, issued by the federal government that we worked, uh, in concert with. Um, so, uh, at Freddie Mac, um, there's a few things we're very proud of. Uh, the first I to speak to was just, you know, more options to help consumers who were facing challenges as a result of the pandemic or other factors that may have been going on, uh, in, in communities, uh, disasters would be another, uh, good example of that. So we actually came out in the last year, uh, with three different, uh, deferral options.

Danny Gardner (12:03):
Uh, all of these options allow for, um, a, a deferment of payment, a non-interest bearing deferment. So a way to think about it is you have a period of time, let's just take the pandemic as a specific example. Um, there was forbearances available for up to 18 months, uh, for those who took advantage of the forbearances, then what this means is that they were able to forego, uh, making regular monthly mortgage payments for that period of time. And then as they exit from the forbearances, then they will have a mo a program available to them. It's not a modification, it's a deferment. And they can just simply tack those payments onto the end of the term of their, of their mortgage, whether they stay in the mortgage through its, you know, potential 30 year term. Uh, whether they pay the mortgage off early or whether they refinance the, um, the past due payments, or the unmade payments, I should say, would just become due upon one of those events.

Danny Gardner (12:56):
And so we have, uh, three versions of the, um, deferral. We have a standard deferral. We have one specifically designed for those impacted by covid and taking advantage of that for Barrons. And then we have a third option available for those who are, uh, impacted by, uh, disasters. And we see, you know, that unfortunately becoming ever more, uh, common, uh, in our country as of late with, as the, uh, climate has transitioned. And we see events such as fires, uh, on the West coast. This is supposed to be a particularly bad hurricane season, if I, if I'm reading the news correctly. Um, so those solutions are there to help those families. Uh, specifically related to the question about credit, I mean, one of the benefits of the CARES Act was that many types of payments where consumers were given forbearances and options, um, creditors were, uh, required to not permit those missed payments, uh, into the credit histories, uh, of those consumers.

Danny Gardner (13:48):
So that goes back to my original comment, which is to say, hopefully we won't see any, uh, dramatic impact to in individuals who were impacted by Covid and took advantage of programs that were federally sponsored, such as forbearances. Um, I'd also like to just speak about, you know, the importance of making all of this available. However, um, at the advent of the pandemic, uh, as you may recall, uh, it was, it's quite a chaotic time, and we did have a very rapid federal response, uh, to the needs on the ground trying to shore up, you know, the economy, trying to retain home ownership. We've seen, uh, foreclosure and eviction moratoriums, uh, as a result, but that still left families very much in a position of potentially not knowing where to go to get clarification about the availability of those programs and where to get answers.

Danny Gardner (14:40):
And unfortunately, as we see, it seems like almost in every crisis, there were lots of of entities out there that were very willing to take advantage of that situation, perhaps to spread either misinformation or to nuance things in such a way that it was a profit making opportunity for themselves, uh, but to the detriment of the family not realizing that it, that resource was not necessary, that they could simply engage and work with their servicers. So, um, we came up with a, um, messaging campaign called hashtag Help Starts Here, and it's still available@freddiemac.com. Uh, professionals and consumers can go out there to get information about all things related to forbearance programs, uh, how to, um, you know, whether you're selling a loan to us servicing a loan for us, or a consumer who has benefit of a Freddie Mac mortgage, Uh, there's lots of information out there about these various programs, how to take advantage of them, how do they actually work, and frankly, who you can go to, uh, to get assistance and better understanding that

Stephanie Budnik (15:40):
That's a good, uh, hashtag to look into. I will definitely make note of that. Um, when we were speaking about, um, kind of the first question that I had touched based on, in, in the diversity, many lenders are continuing to work to reach a wide range of diverse customers and demographics, which will be fitting for how the market is moving. What recommendations do you have in helping them meet these goals that they may have?

Danny Gardner (16:05):
Absolutely. Well, first of all, I would say get educated on it, right? We all, uh, see the need, uh, to ensure that home ownership is made available, uh, in a fair and equitable basis to everyone, uh, who has the desire and, and can qualify because we want everyone who takes on this journey, uh, to be successful. But there's really great data and research available out there. So we at Freddie Mac, uh, put out a lot of information. It can be found@freddiemac.com. Uh, but we also partner with other, uh, organizations such as the Brookings Institute or the Urban Institute. Um, and, uh, even members of the industry like M G I C, um, some of the, uh, larger Wall Street banks, I've seen lots of, uh, research and studies, uh, being put out there about, uh, trends in diverse communities and opportunities. And that's really where we like to focus.

Danny Gardner (16:51):
We, I mentioned earlier, you know, our, uh, notion of this borrower of the future. And so, uh, under that, um, under that focus, we publish a lot of insights that really try to spell out where these opportunities are specific geo, uh, geographies and specific demographics, uh, where we think based upon the, uh, local home prices, uh, we have a view into some redacted credit information. We look at our own internal information, and we really try to help guide, um, our seller servicers towards, uh, where these opportunities lie to really help families and grow their business, uh, based upon data information. So, one, I would recommend everybody, uh, really educate themselves. Um, secondly, um, we, uh, have a focus area we call All for Home, and it's about collaboration amongst the industry. So with partners such as M G I C A and o, other mortgage insurers, uh, real estate communities, mortgage loan officers, title companies, local government, local non-for-profits.

Danny Gardner (17:53):
Uh, and we believe all of these players make up an ecosystem, and we are all very much aligned in one purpose, which is to try and promote sustainable home ownership, uh, to American families who, who seek it. Uh, but we feel we can be more effective in doing so in a coordinated fashion. So I would encourage, um, your listeners to seek out partnerships from some of the constituencies, um, that I just identified. Um, we speak about non-for-profits. There are a great, uh, number of, uh, organizations out there, be they national organizations or local organizations, uh, with whom one can engage and partner, frankly, not just to learn from, but also work alongside in order to reach out into diverse communities. So, uh, organizations like the National Urban League, uh, Unidos, which is a large Latin X uh, supportive organization, and then there's national capacity, which, uh, supports the AA p community.

Danny Gardner (18:49):
All three of those organizations are not only national intermediaries, but they have affiliates throughout the country who are on the ground, uh, seeking partnerships with industry professionals in trying to promote, uh, the, uh, opportunities for home ownership. Another great thing that organizations like this do is that they support education. And Freddie Mac believes very strongly in that, in fact, we have, uh, a couple of tools that we make available to the industry at no cost, uh, so that, that these tools can be leveraged. So, uh, one of the tools I'd like to share with you is what we call Credit Smart Essentials. In fact, we are about to relaunch, uh, Credit Smart Essentials on, uh, July the 16th. And, uh, we have a newly, um, uh, branded and, uh, modernized, uh, capability now of a true learning management system that, uh, individuals can be directed to self-paced online, available on mobile devices, uh, to become more aware and astute with all things that relates to one's financial health.

Danny Gardner (19:49):
But then we go one step further, and we actually have a program called Credit Smart Coach, where we teach other individuals, and in many cases, these are industry professionals, uh, realtors, loan officers, um, people who are active in the faith-based communities, or even active, active, you know, with their employer and trying to help teach this information to others. So, um, that's one thing I wanna make sure your, uh, listeners are aware of. Uh, in addition to, we have the credit smartphone buyer you, and that is a, uh, course that is written specifically to help consumers understand, uh, what it takes to become a sustainable homeowner. And again, that's available, uh, at no cost online self-paced, and through all the capabilities, uh, that I previously mentioned. So, partnerships are key, promoting education is key, and of course, educating oneself about the opportunity is key in order to better serve these communities.

Stephanie Budnik (20:41):
That's great advice. I know education is a big piece for us here at M J A C too, with some of our consumer facing things, and then things that we have on our site. So I, I agree that those things parallel very well with what we think matters, too. The last one, and it's maybe the most unique, but what is the biggest surprise that you've seen or heard in the last few months and why?

Danny Gardner (21:03):
Wow. Well, if, if, if nothing else, it's been, uh, a year and a half of many, many, many surprises <laugh>. So <laugh>, try trying to think, trying to pick the biggest is a is a bit of a challenge. Uh, you know, I I would say maybe not as relevant to the last few months, but over this period of time, I personally have been surprised and just how strong the purchase market has remained in our industry. I mentioned all of these headwinds earlier. Yes. Uh, be it the economy, be it the health issues, um, you know, the, the price of housing, you know, rapidly escalating, really have presented lots of headwinds that make it difficult for families. But we've just seen so much strength in this market. Uh, last year was a record production year for the industry and for Freddie Mac in particular. Um, but we still purchased over a million homes for purchases, of which about 46 to 47% were to first time home buyers.

Danny Gardner (21:58):
Um, I remember just 20 14, 20 15, I believe that metric was somewhere, you know, in the low 30 percentages. So, um, the strength of that has really been, uh, quite incredible, uh, to witness in my opinion. And hopefully, you know, it will continue to sustain. We know with the, uh, record low interest rates, uh, that makes, that opens up the opportunity for many more people. But we've just gotta figure out some way to get on top of our housing supply shortages, uh, out there. Um, the other thing I was gonna mention is just this, I mentioned earlier this out migration from urban centers, and I do believe that is contributing to the health of what we're seeing in the purchase money market. People who previously worked for large employers were required to come to the office every single day, you know, living in areas that were more dense, less affordable, less available supply that met the needs of themselves and their family.

Danny Gardner (22:50):
Uh, but now with the, the hope of, uh, more flexibilities in what we consider our day-to-day work life, our ability, uh, to work remotely and therefore, you know, expand beyond those urban centers, I think is really kept that, uh, that purchase, uh, market healthy. But also just interesting to think about what will that do for rural communities or other communities where you may not have seen quite as much, uh, you know, whether it's diversity, economic investment, uh, services available, or even employment available. You know, this may certainly change things where we have a little bit more, um, opportunity, you know, in places without everyone having to necessarily, um, move to move to the large cities. Um, and then lastly, I would say, um, technology. It's, it's so interesting to think about of all of the technological capabilities we have harnessed over this last year and a half, you know, what, what will remain, you know, what will our ongoing practices be like?

Danny Gardner (23:44):
You know, you and I are, are speaking virtually right now, and we have much more acuity as it pertains to, um, um, sorry, Acuity finds the right word. But anyway, we're, we're much more confident with the use of, of virtual engagement ride video conferencing, if you will. And I <laugh> I've said this in many speaking engagements, it's like, you know, I remember, you know, over the last 20 years, almost everybody had that room in their building. That was the video conference room. <laugh>, no one ever used it. No one understood how to use it. Yeah. And, you know, it was, it was a massively underutilized a capability, but I think we've all become quite comfortable, uh, with this now. And is it pertains to mortgage lending, right? We've come up with opportunities, uh, to create more social distance, whether it's with an appraisal or whether it's with notarization, uh, of documents.

Danny Gardner (24:33):
So we're, we're, we're much more confident in doing things more virtually. And in so doing, I think we can do so more efficiently. Hopefully that means it takes a lot of cost, uh, out of the equation. Cause we know that it is a big barrier. You know, you already have, uh, rising, uh, home prices. We potentially could be facing rising interest rates. Um, so if we could have the benefit of reduced cost through technology and efficient efficiency, excuse me, um, I think that can only be more beneficial, you know, to what we all seek to do, which is to, to grow home ownership and grow our businesses.

Stephanie Budnik (25:03):
That, that's, so I like that you said that just because I've realized so many of the things that you've talked about as surprising things. I can't believe how quick homes still go off the market and how fast and accepted offer sign is up there, or, you know, you listen to the bids that are occurring. And to your point about how fast we came to where we are right now, I mean, I, I personally, I know about that room you're talking about because I've seen it in our office, <laugh>, and I was like, Who uses this? And now if I thought about recording a podcast, I'd be like, I can't do that in the office. I have to do that at home where it's a little bit more quiet and the only thing I have to worry about is the garbage man that just came past my house, you know, at the time of our recording. So that's, um, that's really unique to think about. And I, and I personally went through a refinance during this and a, and a move all in the same thing. So to see some of those things evolve really made it very easy for me to do things from my home and not have to be somewhere else doing them. So those are all valid and great points. Um, I appreciate your time so much today. You had great insights to share with all of our listeners, so thank you so much, Danny.

Danny Gardner (26:13):
Yeah, thank you again for the opportunity. And to all the listeners, you know, uh, best of luck with the coming year. I hope everybody has, you know, weathered what we've been through, uh, recently, you know, in a san and safe manner. And, uh, I'm very optimistic about what the future holds and, you know, ready to, you know, continue to further lean in and, and what we all do really just, just promote home ownership and, and help families be successful, Uh, to that end. So I hope my comments today have added value to that

Stephanie Budnik (26:37):
Equation. It absolutely has. Thank you so much.

Danny Gardner (26:40):
Thank you.

Stephanie Budnik (26:41):
Have a good one. Thank you so much for listening. For all the latest industry insights, subscribe to Mortgage Connects with M G I C on Apple, Stitcher, or Spotify, or check out mortgageconnects.com. Until next time.

What industry trends are you seeing that we should take note of?
What long-term impacts may individuals who took advantage of forbearance options during the pandemic experience regarding their credit?
Many lenders are working on reaching a wider range of diverse customers and demographics. What recommendations do you have in helping them meet these goals?
What’s the biggest surprise you’ve seen or heard in the last few months, and why?