Based on its recent research and panel discussions, the Urban Institute on Friday published "Three Ways to Help 3.2 Million Struggling Homeowners."
The Institute has discovered that while some 3.7 million homeowners, as of November, had resumed mortgage payments and exited forbearance, another 2.8 million remain in forbearance while 369,000 are delinquent on their mortgage payments without the protection of forbearance. Adding to the potential problems, many borrowers who are in forbearance are closing in on the six-month limit and could be forced to exit forbearance unless they reach an agreement with their servicers.
"At a recent webinar, Urban Institute researchers presented evidence of a sizable number of households who are delinquent on their mortgage payments without pursuing loss mitigation, a lack of homeowner awareness of repayment options, and stark disparities in housing payment status by race, ethnicity, and income," the Institute reported.
Following the presentation, those researchers identified three priorities for policymakers, mortgage servicers, and financial institutions to help struggling homeowners:
1.Reach the 369,000 borrowers who are delinquent but are not in forbearance
Of about 775,000 borrowers who have become delinquent since the outbreak of COVID-19, 299,000 never entered forbearance plans, and 476,000 had a plan but became delinquent after the plan had expired. The Urban Institute has found that some borrowers do not understand or cannot navigate the complexities that sometimes accompany forbearance plan initiation or extensions.
The Institute reports that Dana Dillard of Housing Finance Strategies and Lisa Rice of the National Fair Housing Alliance have shown that many households facing multiple issues need help navigating their mortgage options.
"These households may be experiencing health issues, struggling with schooling their kids, and stressing about unstable employment. Even if servicers try to communicate and make the process easy for clients, navigating complicated forbearance and repayment options can be challenging."
One useful tool, the UI pointed out, is consumer counseling by HUD-approved advisors.
2. Prepare for homeowners to exit forbearance this spring
The Institute has discussed myriad ways in which borrowers appear to be confused, and the researchers stressed the need for a better communications plan from the industry.
"The 2.8 million homeowners who remain in forbearance are likely to end up in worse financial shape than the 3.5 million who exited forbearance earlier," the Institute reports. "About 23% of households in forbearance said they did not know whether they will have to make an increased monthly payment or a lump-sum payment to their mortgage servicer once forbearance ends. 54% of households said they have no or slight confidence that they will be able to resume monthly payments when forbearance ends.
The National Consumer Law Center's Diane Thompson said that forbearance and repayment options should be clear and streamlined to avoid confusing servicers and consumers, according to the report. Thompson also emphasized the need for better clarity among government guided systems.
3. Address inequalities across race, ethnicity, and income
Data from the Urban Institute show that households of color and those with lower incomes are more likely to fall behind on housing payments.
Halting negative credit reporting and strengthening anti-discrimination laws are a couple of the solutions panelists recommended. One researcher suggested a bond that could provide direct funding to those who have been hit hardest by the pandemic. Another proposed providing automatic forbearance for borrowers beyond 60 days delinquent "because early intervention is often more effective in helping households get back on track."
All of the analysts on the panel said that telling human stories backed by the data is critical.
"Crises will happen again, and the housing industry cannot reinvent ad hoc responses each time," concludes the author of the article. "Vulnerable homeowners deserve better policies and systems to enhance their financial resilience to weather COVID-19 and future crises."