American borrowers in large part are taking advantage of The Coronavirus Aid, Relief, and Economic Security (CARES) Act, which granted up to 12 months of forbearance to homeowners with federally backed mortgages.
However, because the CARES Act foreclosure moratorium does not cover borrowers with non-agency mortgages, those face a higher likelihood of losing their home, unless they have entered a privately agreed–upon forbearance plan.
A study by the Urban Institute explores the challenges of "unprotected homeowners," finding that Black and Brown Americans are more likely than White borrowers to have unprotected delinquencies and to experience adverse financial consequences of the pandemic. And of all the homeowners having trouble making their mortgage payments during this national health crisis, those of color are most likely to lose their homes. Perhaps, the researchers report, public policy could reduce some of these risks.
As the Institue previously reported, some 400,000 borrowers are "needlessly delinquent ," meaning that although they are eligible, they have not entered forbearance agreements. Research associates Michael Neal and Caitlin Young report that a large share of needlessly delinquent homeowners hails from predominantly Black and Hispanic neighborhoods.
"Based on an analysis of credit bureau and American Community Survey (ACS) data, we find that homeowners in predominantly Black or Hispanic neighborhoods are slightly more likely to be unprotected than those in predominantly white neighborhoods," the researchers wrote. "This analysis corroborates other research findings illustrating that across many economic indicators, the pandemic has had a worse impact on communities of color ."
The most significant consequence of this situation for unprotected borrowers, of course, is the threat of foreclosure. But a second major result is the damage unprotected delinquency has on credit scores.
Many Americans are delinquent on their housing payments, but only those in formal forbearance programs are protecting their credit scores.
The authors point out that today's tight credit environment further burdens unprotected borrowers.
"The combination of low credit scores and tight lending standards makes it impossible for these delinquent borrowers to refinance to lower their payment or extract home equity and makes it more difficult to get a personal loan at a reasonable rate to weather this crisis," they noted. "Coming out of the pandemic, as the economy begins to recover, these borrowers will face limited access to credit for small business investments, mortgages, and other loans that could help them increase their wealth."
The study concludes that a solution lies in targeted policies and efforts—combined outreach from servicers, consumer groups, and the government—toward predominantly Black and Hispanic neighborhoods. And information should be offered in multiple languages to reach borrowers in communities with proportionately large non-English-speaking populations.
Access the full study on Urban.org .