COVID-19's financial toll mounts as homeowners keep postponing mortgage payments
What to expect for mortgages in 2021
Barry Habib, founder of mortgage and bond platform MBS Highway, looks at the record-low mortgage rates and offers interest rate predictions for 2021.
A promising sign of a bounce back in the pandemic-ravaged economy has stalled: Fewer borrowers are resuming mortgage payments.
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The proportion of homeowners postponing mortgage payments had been falling steadily from June to November, an indication that people were returning to work and the economy was beginning to recover. But the decrease has largely flattened since November, when the current wave of coronavirus cases surged in communities across the country.
For roughly the past two months, that group of homeowners has flatlined at about 5.5%, according to the Mortgage Bankers Association. Though that is down from a peak of 8.55% in June, some economists are concerned about the stalling forbearance rate — and worry that it could even start climbing as the economy sheds jobs.
Other data indicate a slowing U.S. economy this winter, and greater pressure on household finances. Employers cut jobs last month for the first time since the spring. The number of job openings has declined, and claims for unemployment insurance remain elevated. Retail sales have fallen for three consecutive months.
"With the waning recovery, and more applications for unemployment claims, we're likely going to see increased demand for forbearance," said Ralph McLaughlin, chief economist at Haus, a home-finance startup. "One of the safeguards people have, if they own a home, is to apply for forbearance."
The roughly 5.5% of borrowers in forbearance represent about 2.7 million homeowners, according to the MBA. (The rate did slip to 5.37% in early January.) At the peak in June, about 4.3 million homeowners were in forbearance plans, according to the MBA.
Shunda Lee had planned to restart payments on her home in Forney, Texas, this month after a three-month forbearance from Regions Financial Corp. ended. The courthouses where she works as a lawyer have often been closed, putting her short-term income in doubt.
The pandemic first shut down Texas courts last spring, but Ms. Lee, 47 years old, managed to stay current until September, tapping her savings to help cover the monthly payments of about $1,600 on her federally backed mortgage. She recently asked for — and received — a three-month extension on her forbearance plan from Regions.
If she's still not working full time when the extension expires, she said, she plans to request additional forbearance. Ms. Lee said she would ask for help from her parents, who live nearby, as a last resort.
"If worst comes to worst, that's what I'll do," she said. "Nobody wants me to lose my house."
The federal Cares Act passed last March afforded borrowers the opportunity to postpone payments on federally backed mortgages for up to 12 months. About 75% of U.S. mortgages are guaranteed or insured by the U.S. government, according to mortgage-data firm Black Knight Inc.
Many homeowners might not be able to start paying again when the oldest plans start to expire in late March, said Andy Walden, director of market research at Black Knight.
"That's a huge unknown in terms of what share of those homeowners…could get back on track and what share need additional assistance," Mr. Walden said.
Just 35% of homeowners with forbearance plans that expired near the end of December were removed from forbearance in the first week of January, according to Black Knight. That was down from an average of 60% in the previous three months. That means more borrowers got extensions on their forbearance plans in January.
Some of the borrowers who exited forbearance no longer needed the relief plans, and others were able to work out longer-term repayment options, like a modified loan with a lower interest rate. Others with recently expired forbearance plans have already fallen behind on their payments, according to the MBA. Of those borrowers, some likely needed an extension and simply forgot to ask for one — or didn't know they needed to ask.
Homeowners with Federal Housing Administration loans are more likely to be in forbearance than those with mortgages backed by Freddie Mac or Fannie Mae, according to MBA data. Just 3.13% of Fannie and Freddie mortgages were in forbearance in early January, compared with 7.67% of FHA loans.
FHA borrowers typically have weaker credit, lower incomes and smaller down payments than Fannie and Freddie borrowers. Job losses during the pandemic have disproportionately affected low-wage workers, including employees of restaurants, hotels and shopping malls that have been devastated by the stay-at-home economy.
And people who find they need to sign up for mortgage relief in the near future might not be able to get it. The current deadline to sign up for forbearance on many federally backed home loans is the end of February. On his first day in office, President Biden asked the Department of Housing and Urban Development and other agencies to extend the deadline until at least the end of March. (The U.S. Department of Agriculture already agreed to do so.)
Dean Lemieux, 51, of Daphne, Ala., signed up for forbearance with his lender, Mr. Cooper Group Inc., in December.
Mr. Lemieux, a project manager in the oil-and-gas industry, lost his six-figure income last spring when oil prices fell to their lowest level in years. He and his wife drew down their savings to stay current on their mortgage through the fall.
"It was like we were on the Titanic," Mr. Lemieux said. "Now we're in the life raft with the forbearance."
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