Vulnerable U.S. homeowners face uncertainty as mortgage forbearance ends
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[October 15, 2021] By
Jonnelle Marte and Katanga Johnson
(Reuters) - Close to half a million
low-income homeowners in the United States, many of them minorities, are
nearing the end of mortgage forbearance plans that allowed them to halt
loan payments during the pandemic, presenting a test for the mortgage
service firms tasked with helping struggling borrowers move onto payment
plans they can afford.
The number of borrowers exiting the plans is expected to surge over
coming weeks as people who signed up early on in the pandemic reach the
18-month limit for forbearance. While close to 80% of homeowners who
entered programs at some point in the pandemic have since exited them,
the remaining 20% tend to live in areas with higher shares of
minorities, or have lower credit scores and lower incomes, research
Their missed payments could add up to a "forbearance overhang" of more
than $15 billion in postponed mortgage payments, or about $14,200 per
person, according to Brookings Institution research
"When coupled with unemployment insurance expiring and other things
happening at the same time, itís not clear that these folks will have an
easy time coming out of this," said Amit Seru, a professor at Stanford
Graduate School of Business and a senior fellow at the Hoover
Many borrowers will be able to push missed payments to the end of their
loans, and others will be able to capitalize on a hot housing market to
refinance or even sell their homes. Homeowners facing hardships who
signed up for forbearance in later months may still be eligible for
RACIAL GAPS WORSENED
The pandemic worsened racial disparities among homeowners. Black and
Hispanic homeowners, disproportionately affected by pandemic-related job
losses, were 30% more likely to fall behind on mortgages than the
average borrower in the early months of the crisis, between April and
November of 2020, according to the Federal Reserve Bank of Philadelphia
Some 7.6 million borrowers have been in forbearance at some point during
the pandemic, representing about 15% of all mortgage holders, and about
1.25 million borrowers were still in forbearance plans in mid-October,
according to Black Knight, a mortgage technology and data provider.
It estimates that about 850,000 homeowners who participated in
forbearance were in plans set to expire by the end of this year,
including those who already exhausted their options. Roughly half of
those homeowners have loans backed by the Federal Housing Administration
or the Department of Veterans Affairs.
Those loans, which often require smaller down payments and lower credit
scores, are disproportionately used by low-income borrowers, first-time
home buyers and minorities. FHA loans, for example, were used by 37% of
minority home buyers in 2019, according to the Department of Housing and
Graphic: Forbearance winds down for vulnerable borrowers,
How easily those homeowners are moved into other plans after their
forbearance programs end will be monitored by regulators and others in
the weeks ahead.
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A real estate sign advertising a home "Under Contract" is pictured
in Vienna, Virginia, outside of Washington, October 20, 2014.
"We're going to watch closely," said Mark McArdle, assistant director of
mortgage markets at the Consumer Financial Protection Bureau.
The CFPB ramped up scrutiny of mortgage servicers over the matter this spring
and in June finalized new protections for homeowners struggling to make mortgage
payments due to the pandemic. Still, foreclosures will be allowed to resume once
those extra protections have been met.
The process can be mystifying.
Soon after forbearance ended for Marvin Williams in August, he learned his loan
would be transferred to another servicer.
For longer than a month, Williams said it was not clear if the new company would
defer his missed mortgage payments - adding up to at least $8,000 - to the end
of his loan or if he would have to pay it back sooner.
Williams, 63, said he often endured two-hour waits on the phone when trying to
get in touch with the servicer. On Wednesday, the housing counselor helping him
with his case was told the payments would be deferred, but Williams said he is
still waiting for written confirmation. "I'm trying to hope that Iím in the
right place with this," said Williams, who lives outside Rochester, New York.
Borrowers exiting forbearance can generally choose between resuming payments and
having the deferred debt tacked on to the end of their mortgage; having loans
modified so monthly payments are reduced; or paying back the debt by selling the
home or refinancing.
The pace of forbearance exits increased in September and is expected to hit the
highest pace in more than a year over the next few weeks, said Mike Fratantoni,
a senior vice president and chief economist for the Mortgage Bankers
Mortgage service firms hired more workers and are "well prepared" for the higher
case load, Fratantoni said. "It is such a stark comparison to what happened a
decade ago where coming out the great financial crisis everyone was just so
frustrated with the pace of resolution."
This time, servicers - who receive payments from borrowers and disburse them to
investors, tax authorities and insurers - have simplified the process for moving
to alternatives so that homeowners need to provide little or no additional
About 35% of borrowers who exited forbearance in September resumed paying and
deferred missed payments to the end of their loan, according to the MBA. About
28% modified their loans and 19% exited without a plan in place, including many
still working toward a loan modification, said Fratantoni.
The boom in home prices, up over 30% since the pandemic began, may help. About
93% of borrowers in forbearance have at least 10% equity in their homes even
after 18 months of missed payments, according to Black Knight . After the Great
Recession, by contrast, 28% of borrowers owed more on their mortgages than their
homes were worth.
(Reporting by Jonnelle Marte in New York and Katanga Johnson in Washington;
Editing by Dan Burns and Andrea Ricci)
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