Most homeowners have exited mortgage forbearance programs—but those who are left are the most vulnerable

As of March 2021, about two-thirds of homeowners who signed up for some type of mortgage forbearance during the Covid-19 pandemic have exited the programs, according to new research from the New York Federal Reserve. Only 35% of borrowers, or about 2.2 million homeowners, who signed up for forbearance remain in these programs, the New York Fed found.

But those who remain in forbearance typically have lower credit scores and live in lower-income neighborhoods, making them more susceptible to losing their homes when these programs end later this year. 

“The borrowers in the subprime credit score buckets are much, much more likely to have both entered forbearance, and still be in forbearance at this point,” says Joelle Scally, a financial and economic analyst with the New York Fed and an author of Wednesday’s report.

In contrast, homeowners with the highest credit scores have typically already exited forbearance. 

Many of the current forbearance programs were set up in the CARES Act last year and apply to federally-backed loans offered through agencies including Fannie Mae, Freddie Mac, the Federal Housing Administration and the Department of Housing and Urban Development. Private lenders and servicers also set up their own forbearance programs.

The report found that those who have FHA-backed mortgages were more prone to enter forbearance. That’s because these mortgages are typically held by first-time homebuyers who live in lower-income areas.

About 70% of all homeowners still in forbearance are not making any payments, and the worst-case scenario, the researchers estimate, is that about 2.9% of all mortgage borrowers could end up in delinquency. That means the serious delinquency rate, which is defined as payments that are over 90 days late, would shoot up from 0.9% currently to 3.8%.

That’s still much lower than the 6.3% delinquency rate seen in 2010 in the midst of the Great Recession. 

But “even if we don’t see levels of delinquency that rival those of the Great Recession, that still could represent a significant amount of hardship for the households involved and it would still be a relatively sharp increase in where we are today,” says Andrew Haughwout, one of the report’s author and senior vice president in the New York Fed’s research and statistics group.

The good news is, this will perhaps not be the “wave” of foreclosures that some experts predicted would occur this fall, once these forbearance programs start to wind down.

In fact, to prevent an overwhelming surge in Americans losing their homes, the Consumer Financial Protection proposed a rule earlier this year that would prevent lenders from starting foreclosure proceedings until 2022. The CFPB’s proposed rule would cover all homeowners, including those with mortgages through private lenders such as banks.

The CFPB’s plan, however,  is only a proposal at the moment. The agency was seeking public comments through May 11 before issuing a final rule.


Megan Leonhardt- CNBC

Don’t Stop Here

More To Explore

Where Are Mortgage Rates Headed?

There’s never been a truer statement regarding forecasting mortgage rates than the one offered last year by Mark Fleming, Chief Economist at First American: “You know, the fallacy of economic forecasting is: Don’t ever try and forecast interest rates and or, more specifically, if you’re a real estate economist mortgage rates, because you will always invariably be wrong.”

Read More »

What You Need To Budget for When Buying a Home

When it comes to buying a home, it can feel a bit intimidating to know how much you need to save and where to find that information. But you should know, you’re not expected to have all the answers yourself. There are many trusted professionals who can help you understand your finances and what you’ll need

Read More »

Don’t Get Caught Off Guard by Closing Costs

As a homebuyer, it’s important to plan and budget for the expenses you’ll encounter when you purchase a home. While most people understand the need to save for a down payment, a recent survey found 41% of homebuyers were surprised by their closing costs. Here’s some information to help you get started so you’re not caught off guard

Read More »

How Global Uncertainty Is Impacting Mortgage Rates

If you’re thinking about buying or selling a home, you’ll want to keep a pulse on what’s happening with mortgage rates. Rates have been climbing in recent months, especially since January of this year. And just a few weeks ago, the 30-year fixed mortgage rate from Freddie Mac approached 4% for the first time since May of 2019. But that climb has

Read More »

Down Payment Assistance Programs Can Help You Achieve Homeownership

For many homebuyers, the thought of saving for a down payment can feel daunting, especially in today’s market. That’s why, when asked what they find most difficult in the homebuying process, some buyers say it’s one of the hardest steps on the path to homeownership. Data from the National Association of Realtors (NAR) shows: “For first-time home

Read More »

Want Top Dollar for Your House? Now’s the Time To List It.

When you’re selling any item, you usually want to sell it for the greatest profit possible. That happens when there’s a strong demand and a limited supply for that item. In the real estate market, that time is right now. If you’re thinking of selling your house this year, here are two reasons why now’s

Read More »

LOGIN

Not a member? Sign up!

LETS START YOUR HOME BUYING JOURNEY!