Policy Corner: A Critical Moment for Struggling Homeowners

By David Sanchez, Director of Research & Development

As we approach seven months since the COVID national emergency was declared, the virus’ effect on housing and mortgage markets is becoming clearer.  The lending industry is busy processing robust home purchase and mortgage refinance volumes, and nationally home price appreciation is accelerating. 

But beneath this seemingly rosy picture, COVID is wreaking having on household finances, with predictably more damaging effects on households and communities of color.  Across the board we’ve seen access to mortgage credit tighten, with the largest impacts among smaller mortgages and for borrowers with less than pristine credit.  And, unsurprisingly, we’ve seen a dramatic rise in the number of households struggling to make their mortgage payments.  Among FHA loans, the 90-day delinquency rate is higher today than it was during the height of the foreclosure crisis.

Fortunately, many struggling borrowers have the option of a mortgage forbearance, which enables them to pause their payments temporarily.  For borrowers with federally backed mortgages, this forbearance can be up to 12 months long.  However, mortgage servicers may only provide forbearance for six months at a time, and borrowers must proactively request both the initial forbearance and its extension from their servicer.

Now is a critical moment for foreclosure prevention, as the bulk of borrowers in forbearance are reaching the end of the initial six-month forbearance period. Borrowers must now contact their servicers – either by phone, online, or by mail – to let the know whether they’d like to extend their forbearance or whether they’re ready to resume making payments. From their end, servicers will be reaching out to borrowers for the same reason. Whether borrowers fall through the cracks now is a good indicator of whether servicers will be able to help these borrowers ultimately avoid foreclosure — or whether we will see a repeat of the foreclosure crisis, when servicers routinely failed to help borrowers, thereby exacerbating our nation’s severe housing market distress.

NCST would love to know if you’re hearing anything in your community regarding mortgage forbearances, forbearance extensions, or post-forbearance mortgage reinstatement. If you have any thoughts or questions on this topic, please do not hesitate to contact me.