Vulnerable US homeowners face uncertainty as mortgage forbearance ends
By Jonnelle Marte and Katanga Johnson
(Reuters) – Nearly half a million low-income homeowners in the United States, many of whom are minorities, are nearing the end of mortgage forbearance plans that allowed them to halt loan repayments during the pandemic, presenting a test for mortgage service companies tasked with helping struggling borrowers adopt payment plans they can afford.
The number of borrowers leaving the plans is expected to increase over the next few weeks as people who signed up at the start of the pandemic will reach the 18-month forbearance limit. While nearly 80% of homeowners who entered programs at some point in the pandemic have since left, the remaining 20% ââtend to live in areas with higher shares of minorities, or have lower grades. credit and lower incomes, according to research.
Their missed payments could represent an “excess tolerance” of more than $ 15 billion in deferred mortgage payments, or about $ 14,200 per person, according to a study by the Brookings Institution.
“When you add the expiration of unemployment insurance and other things happening at the same time, it’s not clear that these people will get away with it easily,” said Amit Seru, professor at Stanford Graduate School of Business and Principal Investigator at the Hoover Institution.
Many borrowers will be able to put off missed payments until their loans are over, and others will be able to capitalize on a vibrant real estate market to refinance or even sell their home. Owners facing difficulties who have signed up for forbearance in the past few months may still be eligible for additional extensions.
INCREASED RACIAL GAPS
The pandemic has exacerbated racial disparities between owners. Black and Hispanic homeowners, disproportionately affected by job losses linked to the pandemic, were 30% more likely to fall behind on mortgages than the average borrower during the first months of the crisis, between April and November 2020, according to the Federal Reserve Bank of CrÃªme Philadelphia.
Some 7.6 million borrowers were on forbearance at some point during the pandemic, representing about 15% of all mortgage holders, and about 1.25 million borrowers were still on forbearance plan at the time of the pandemic. mid-October, according to Black Knight, a mortgage technology and data provider. .
He estimates that about 850,000 homeowners who participated in the forbearance were in plans that were due to expire by the end of this year, including those who have already exhausted their options. About half of these homeowners have loans guaranteed by the Federal Housing Administration or the Department of Veterans Affairs.
These loans, which often require smaller down payments and lower credit scores, are disproportionately used by low-income borrowers, first-time buyers, and minorities. FHA loans, for example, were used by 37% of minority home buyers in 2019, according to the Department of Housing and Urban Development.
Graphic: Forbearance ends for vulnerable borrowers, https://graphics.reuters.com/USA-ECONOMY/FORBEARANCE/zjpqkeqrxpx/chart.png
The ease with which these owners are transferred to other plans after their forbearance programs end will be monitored by regulators and others in the coming weeks.
âWe will be watching closely,â said Mark McArdle, deputy director of mortgage markets at the Consumer Financial Protection Bureau.
The CFPB stepped up mortgage officers’ scrutiny on this this spring and finalized new protections in June for homeowners struggling to make mortgage payments due to the pandemic. However, seizures may resume once these additional protections have been respected.
The process can be confusing.
Shortly after the abstention for Marvin Williams ended in August, he learned that his loan would be transferred to another agent.
For more than a month, Williams said it was unclear whether the new company would postpone its missed mortgage payments – totaling at least $ 8,000 – when his loan ended or if he would have to pay it back sooner. .
Williams, 63, said he often had to wait two hours on the phone when trying to contact the maintenance agent. The housing counselor who was helping him with his case was told on Wednesday that payments would be deferred, but Williams said he was still awaiting written confirmation. âI’m trying to hope I’m in the right place with this,â said Williams, who lives outside of Rochester, New York.
Borrowers coming out of forbearance can generally choose between resuming payments and deferring debt until the end of their mortgage; modify loans to reduce monthly payments; or by paying off the debt by selling the house or refinancing.
The pace of forbearance outflows increased in September and is expected to reach the highest rate in more than a year in the coming weeks, said Mike Fratantoni, senior vice president and chief economist of the Mortgage Bankers Association.
Mortgage service companies have hired more workers and are “well prepared” for a higher workload, Fratantoni said. “It’s such a stark comparison to what happened a decade ago, when after the Great Financial Crisis, everyone was so frustrated with the pace of resolution.”
This time around, service providers – who receive payments from borrowers and pay them to investors, tax authorities and insurers – have simplified the process of transitioning to alternatives so that homeowners have to provide little or no additional documentation.
According to the MBA, about 35% of borrowers who came out of forbearance in September started paying again and postponed missed payments at the end of their loan. About 28% changed their loans and 19% came out with no plan in place, many of whom are still working on a loan modification, Fratantoni said.
Soaring house prices, up more than 30% since the start of the pandemic, could help. According to Black Knight, about 93% of borrowers with no forbearance have at least 10% of their home equity even after 18 months of missed payments. After the Great Recession, by contrast, 28% of borrowers owed more on their mortgage than their home was worth.
(Reporting by Jonnelle Marte in New York and Katanga Johnson in Washington; Editing by Dan Burns and Andrea Ricci)