Mortgage forbearance ends and the road back can be rocky
In the 18 months since the passage of the CARES Act, more than one million U.S. homeowners have taken advantage of the forbearance protections provided by the law.
After a few extensions, the pause in mortgage payments has officially ended – or will end soon – for $ 1.2 million of an estimated 1.7 million loans that remained outstanding in August, according to CoreLogic.
While experts say market conditions should prevent a wave of foreclosures, some borrowers are still struggling to get back on track.
Here’s what you need to know if your own blackout period is coming to an end.
Forbearance is over for over a million loans
When the pandemic hit, Carl Johnson had to stop working as an entertainer at children’s parties. The Cincinnati resident knew he wouldn’t be able to meet his mortgage payments, so he forbore 18 months ago.
Like millions of other borrowers, Johnson said his forbearance protections ended on September 30 and he now has to make up for missed payments or possibly sell his home. He would have liked to have been better informed of the end of the forbearance programs before submitting an application.
“I kept getting a letter giving the impression that it was our option to choose which program we want to do,” he said via Facebook Messenger, describing how he expected to be able to get into it. stay after the end of his abstention and catch up. missing payments at the end of the loan.
Instead, Johnson’s lender said he currently does not have enough income for a deferral and is encouraging him to consider a short sale or deed in lieu of foreclosure.
And Johnson isn’t the only one facing tough decisions now that the forbearance protections of the CARES Act are ending.
“This is the point that concerns us,” said Selma Hepp, deputy chief economist at CoreLogic. The industry has been watching to see if ending forbearance protections would lead to a wave of foreclosures, but Hepp said 2021 is set to be very different from the last financial crisis, at least when it comes to the housing market.
CoreLogic predicts that only about 200,000 of the 1.2 million forborne loans are at risk of foreclosure, but that’s still not a likely outcome for most of these borrowers.
“There is still a lot to be done without these people being displaced,” Hepp said.
Since real estate prices have risen dramatically over the past year, most homeowners have built up equity in their properties even though they are behind on their mortgage payments.
“It gives them the option to sell their home, or their refi opportunities would be better,” Hepp said.
Abstention protections and a national moratorium pushed foreclosures to an all-time high during the pandemic. Although data company Black Knight reported an increase in foreclosures in August, there were still 80% fewer foreclosures in August 2021 compared to August 2019.
Communicating with your lender is essential
The most important thing if you’re near (or past) the end of your 18 months of forbearance protection is to connect with your lender or use community resources to help you determine your options.
“Some borrowers may be wary of their lenders, especially if they are older or not very well off financially, they don’t have financial knowledge,” Hepp said.
While it is true that lenders want you to pay them, they usually do not want to go through the foreclosure process and may be willing to work with you to modify your loan or find another way to settle your debt, including by allowing you to sell your house and give them a portion of the proceeds.
“What the data doesn’t tell us is why so many people who could avoid an involuntary liquidation by selling through traditional channels just don’t end up doing it,” said Ben Graboske, president of Black Knight Data & Analytics, in a press release. “Whether this is due to a lack of understanding of their equity positions or the foreclosure process in general is unclear. “
In addition to talking to your lender, said HUD certified Hepp housing counselors may be able to help you figure out how to get out of forbearance without risking foreclosure.
With so many borrowers coming out of forbearance in the coming weeks, lenders may have backups on their customer service lines.
“There is like a pig moving through a python. It can be difficult to reach some of the lenders, ”Hepp said, but stressed that persistence is key. “Don’t give up, keep calling, keep staying in the loop, it’s essential at this point.”
For some borrowers like Johnson, however, being in contact with their lender is not a guarantee of optimal results.
“If they had explained the options in any letter I would be fine, but my letters said, ‘We have options, a postponement, etc., etc. most, ”he said.
Because he was not told in advance of the income requirements for the deferral, Johnson said, he is not sure whether forbearance is ultimately the right choice for him.
“I most likely could have borrowed money or rented a room to earn extra money or something,” rather than suspending her mortgage payments.
Ending abstention may not boost housing supply
While some homeowners like Johnson may have to sell out of forbearance if they still can’t pay their mortgage, it’s unclear what effect this might have on the national housing supply.
Some industry watchers believe ending forbearance could give the lists a much needed boost, but Hepp isn’t so sure.
“Often a transaction can take place before the house even hits the market,” she said. “An intermediary can come in as an iBuyer or a large institutional investor,” which would mean that these houses could be rented out for the long term.
Additionally, Hepp added, foreclosures and sales are more likely to occur in areas where few people are looking to relocate.
“The areas where the abstention rate is the highest are the areas that were hit hardest even before the pandemic,” such as the Gulf Coast, she said. “Where we need the inventory, we probably won’t see it.”
So hopeful buyers who are biding their time for the market to cool down may have to keep waiting.
New abstention requests are always accepted
As existing forbearance plans come to an end, the Federal Housing Administration announced last month that homeowners who are still feeling the effects of the coronavirus pandemic are eligible for forbearance if they have not yet suspended their payments. . The agency will allow borrowers to request up to six months of abstention until the end of the national COVID-19 emergency.
“Our top priority is to help as many people and families as possible recover from the COVID-19 pandemic and keep their homes,” Lopa Kolluri, senior assistant housing secretary, said in a statement. “For the FHA, that means we’ll continue to work through all of our channels – mortgage agents, housing counselors and our other federal partners – to ensure we get the positive results distressed homeowners need.”
At the end of the line
A majority of homeowners who were still in forbearance under the CARES Act saw their protections end at the end of last month, or will see those protections come to an end in the coming weeks.
Ending forbearance for so many homeowners can lead to an increase in foreclosures, but it’s important that borrowers are in contact with their lender if they are still unable to pay. Loan modifications or a planned sale of your property can help you avoid the stress and financial hardship of repossessing your home.
Johnson has said, however, that communication needs to be a two-way street and wishes his lender had been more open with information on how their forbearance plans were working.
“It would be better if the mortgage companies would have been in advance of how to get into the deferral program,” he said.