The mortgage forbearance option in the March 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act offered relief to millions of homeowners during the COVID-19 pandemic. The 33.4 million with federally backed mortgages can request from their servicers a forbearance plan (with far less documentation of financial hardship than is usually required) allowing them to delay their mortgage payments for up to 180 days, with another 180-day extension available after the first forbearance period ends.
As previously reported, some 14.6 million borrowers whose mortgages are in bank portfolios or private-label securities (PLS) are not covered by the CARES Act, but these borrowers have the highest share of loans in forbearance.
A survey of PLS servicers conducted by the Structured Finance Association found each servicer was offering initial forbearance requests with minimal documentation requirements and without burdensome repayment plans, such as lump-sum payments, immediately following forbearance expiration, reports Jung Hyun Choi, Research Fellow at the Urban Institute.
Upon collecting data from the Mortgage Bankers Association (MBA), Black Knight, and the US Census Bureau, Choi published six important facts about mortgage forbearance, adding that if policymakers are to better understand how to support all homeowners during this crisis, more data is essential.
The facts, as she reported them, are as follows:
1. MBA data showed 7.44% of mortgages in forbearance. The share of loans in forbearance was the highest for loans in PLS and portfolio loans (10.12%), followed by Ginnie Mae loans (10.06%) and government-sponsored enterprise loans (5.19%).
2. The rates have dropped since June. Early last month, the share of loans in forbearance was 8.6% according to MBA’s survey of servicers and 8.9% according to Black Knight’s loan-level data. The share has dropped continuously since June as some homeowners in 90-day forbearance plans have come out of their plans without asking for an extension. Black Knight’s loan delinquency rates, which include loans in forbearance and not in forbearance, show a slight drop in the 30-day delinquency rate, from 7.8% in May to 7.6% in June.
3. Minority homeowners have been hit hardest. The US Census Bureau’s Household Pulse Survey reveals large differences by race and ethnicity, with Black and Hispanic households significantly more likely to miss or defer monthly mortgage payments and experience uncertainty about making next month’s payment than white households.
According to the most recent survey, conducted from July 16 to 21, nearly 21% of both Black and Hispanic homeowners missed or deferred the previous month’s mortgage payment, compared with 10% of white homeowners and about 13% of all homeowners with payments due. This gap persisted over the duration of all survey weeks, as Black and Hispanic homeowners continue to be disproportionately burdened by the pandemic’s impact on employment and financial stability.
4. Homeowners are worried. As federal unemployment insurance payments established by the CARES Act were set to expire at the end of July, the share of households expressing “no confidence” in their ability to make their August mortgage payment reached almost 6%, its highest since the Household Pulse Survey began. That 6% includes 16% of Hispanic households and 8% of Black households but just 3 percent of white households.
5. More than 1 million households in forbearance are still paying their mortgage. Both MBA and Black Knight (PDF) show that about a quarter of households in active forbearance plans are still making their mortgage payments. We don’t know much about these households, including why they are still paying their mortgages despite their forbearance status, but more information could help policymakers.
6. More than 700,000 went delinquent despite forbearance options. Of greater concern, 530,000 homeowners who became delinquent after the pandemic began did not take advantage of forbearance, despite being eligible to ask for the plan. According to a recent National Housing Resource Center survey (PDF) of housing counselors, the two most common reasons are as follows:
1. Fear of making a lump-sum payment at the end of the period (69.9%)
2. Not knowing about the program (56.6%)
These responses reflect a need to provide better information to all homeowners. (Lump-sum payment is not the only repayment option.) Although these survey results are valuable, they don’t reveal who these people are, which makes it difficult to develop outreach strategies.
Additionally, 205,000 homeowners who did not extend their forbearance after its term ended in June or July became delinquent on their loans. We need to examine who these people are and why are they not extending their option.
Choi goes on to add details about the need for more data, and includes graphic information related to the above numbers.