The nation’s consumer watchdog agency says more borrowers are behind on their mortgages than at any time since the Great Recession. And the situation is even worse for Black and Hispanic borrowers, who are twice as likely to be delinquent or in a forbearance program as white borrowers.
It’s not quite a true repeat of the housing crisis, which forced millions to fall behind on their mortgages and many to eventually lose their homes to foreclosure, but there’s no question that the pandemic has pushed many homeowners to the financial brink.
So, the Consumer Financial Protection Bureau (CFPB) is ringing an alarm bell it hopes homeowners and mortgage loan servicers hear. If you have a federally backed mortgage and can’t pay, contact your lender to take advantage of coronavirus-related forbearance relief before the program ends. If you’re a loan servicer, the agency issued a warning that urges you to work with borrowers and communicate the options available to avoid a wave of foreclosures.
Coronavirus-related foreclosure prevention by the federal government has helped mitigate another mortgage crisis. Starting with the Coronavirus Aid, Relief and Economic Security Act — the CARES Act — borrowers hit hard by the pandemic have a right to ask for and receive a forbearance, which permits them to temporarily stop making mortgage payments. To qualify for this relief, the loan has to be federally owned or backed by federal agencies or entities such as Fannie Mae or Freddie Mac. Many private lenders followed the government’s lead, though they weren’t required to do so, and also granted forbearance.
The efforts have largely worked for homeowners. Home loans in forbearance peaked in early June at 8.55%, according to the Mortgage Bankers Association. Almost 4.3 million homeowners were then in forbearance plans. As of April 25, the number dropped to 4.47% of loans in forbearance, representing 2.23 million homeowners.
“What was really a surprise through this crisis was that many homeowners took forbearance, likely anticipating a hardship, and then either it didn’t happen or they still had the resources to keep paying on their loans,” said Mike Fratantoni, MBA chief economist.
Yet the recovery has been anything but equal.
Black and Hispanic homeowners were more than twice as likely as white homeowners to be behind on mortgage payments as of March, the CFPB says in a newly released report, based on an analysis of nearly 662,000 mortgage loans for owner-occupied properties through March 21.
The agency found that Black and Hispanic borrowers accounted for 33% of loans in forbearance and 27% that were delinquent. The numbers are concerning because Black and Hispanic borrowers together make up just 18% of all mortgage borrowers.
“What this report shows, which is consistent with all the other data that we know, is that Black and Hispanic communities were hardest hit by the crisis, slowest to recover and the most vulnerable to mortgage shocks,” said Diane Thompson, senior adviser to the CFPB director. “We are seeing significant portions of the population who are just not benefiting from the recovery the way other parts of the population are.”
For most federally backed loans, the deadline to ask for an initial forbearance is June 30. Borrowers who were in forbearance with Fannie Mae or Freddie Mac as of Feb. 28, 2021, can extend the forbearance for up to 18 months. Borrowers who were in forbearance with the other federal agencies as of June 30, 2020, can extend up to 18 months.
Forbearance can help prevent foreclosure. Yet many minority borrowers, who have been disproportionately affected negatively by the pandemic, still might not be able to hang on to their homes.
“Those communities are much more at risk of losing their homes and not being able to get back on track when the foreclosure moratorium and mortgage forbearance ends,” Thompson said.
People should work with their loan servicer to avoid foreclosure. But if the worst happens, the conventional advice for borrowers who can’t catch up with their mortgage payments, or whose income won’t support even a loan modification, is to sell.
With a hot housing market resulting in record home prices, take whatever equity you have and walk, said Laurie Goodman, co-director of the Urban Institute’s Housing Finance Policy Center.
“Let go of your home that you can’t afford and use the equity to buy something you can afford,” Goodman said.
This will be a hard sell for many minorities who already have low homeownership rates, in large part because of housing discrimination. But better to sell and start over than to lose the house to foreclosure.
“If you are a borrower in distress, home price appreciation is your best friend,” Goodman said. “It allows you to sell your home easily, extract positive equity you gain through time.”
But before Black and Hispanic borrowers are forced to sell, the message has to be that this can’t be a repeat of the Great Recession, which had a disparate impact on minorities. We can get it right this time and keep people in their homes.
People coming out of forbearance have a number of options. If they can afford an increase in payment, a repayment plan would allow them to spread missed payments over a specified number of months, added to their regular mortgage, Goodman pointed out. If the borrower can afford only their old payment, a deferral might be the right answer, in which the delinquent balance is added to the back end of the loan. The past-due payments would effectively extend the term of the loan. If those options don’t work, borrowers might qualify for a loan modification, which would lower their monthly mortgage payment if they’re back to work but their income significantly dropped.
As programs designed to aid mortgage borrowers during the pandemic wind down, we have to protect cash-strapped Black and Hispanic borrowers from losing their homes. If we don’t, this latest economic downturn will only further exacerbate the racial wealth gap.
Michelle Singletary is a personal finance columnist for The Washington Post. Her column runs on Sunday.