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After Forbearance: A Return to Normalcy

As a mortgage provider, you may find yourself working with customers who have exited mortgage forbearance and are facing difficulties paying back what they owe, especially during the past year. As a result of the COVID-19 pandemic, total outstanding U.S. consumer debt skyrocketed $800 billion, reaching around $14.9 trillion in total in 2020. It’s also estimated that the average American has $90,460 in debt. This includes all types, from credit cards and personal loans to student loans and mortgages. 

Credit Karma survey of more than 1,000 homeowners in forbearance in April 2021 found that 31% used the extra funds for groceries, medical costs, and pandemic-related expenses like homeschooling supplies, and 32% saved the extra money by putting it into an emergency fund or savings account 

When it comes to COVID-19-related forbearances specifically, 591,000 of the 5.7 million homeowners who have exited the program were delinquent on payments as of June 2021, a number that’s only expected to rise, as this figure is already three times the pre-pandemic rate.  

Regardless of how homeowners are paying back forbearance debt, those that are struggling often find themselves dipping into emergency funds or even retirement savings to stay afloat. But if you have customers who are experiencing hardship when it comes to making up their forbearance debt or even qualifying for additional financial assistance through other products you offer, there may be a way to help them avoid having to use their savings to pay back what they owe. 

Beyond the traditional financing options like a home equity loan, cash-out refinance, and home equity line of credit (HELOC), which may not be a possibility for many due to their qualification and approval requirements, there’s a debt-free, alternative solution. 

A home equity investment gives homeowners near-immediate access to their equity in exchange for a share of their home’s future value. They receive the equity (up to 30% of their home’s value for a maximum of $600,000) in the form of cash. Once they receive it—funding typically has a timeline of about three weeks—they can use the money for whatever they’d like, including paying back their mortgage balance or other debts they owe. This can be especially helpful for homeowners who have arranged to take care of their forbearance with a lump sum payment. 

While the best decision for each homeowner ultimately depends on their specific financial situation, making them aware of unique options like home equity investments can be a win-win for the both of you. By sharing an avenue through which they can access their hard-earned equity to handle their forbearance payments, you’re not only maintaining a positive relationship, but allowing them to move forward confidently toward achieving their financial goals. 

About Author: Jonathan MacKinnon

Jonathan MacKinnon, Hometap's VP of Product Strategy and Business Development, is responsible for defining and executing on new product offerings, as well as forming strategic partnerships. He has more than 15 years of experience in management, business, and corporate development, and investing and operations. He was the Head of Growth and Operations, Consumer Finance for CarGurus, and the Senior Director of Business Operations & General Manager for PistonHeads.com. He holds an MBA from Dartmouth College and BA in Economics and History from Amherst College.
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