There are thousands of Americans who are having trouble making their monthly mortgage payments due to the coronavirus pandemic—or will soon, if the crisis drags on. In the past month, nearly 17 million Americans have filed for unemployment as shelter-in-place orders, social distancing measures, and nonessential business closures went into effect. Last week, economists estimated the unemployment rate was about 13%—worse than during the Great Recession. And those numbers don’t even include many out-of-work, self-employed, and gig workers along with those who’ve had trouble filing their claims because unemployment offices are overwhelmed.
The widespread misery spread by COVID-19 has left many homeowners scrambling to figure out how to pay their mortgages. Homeowners with government-backed loans—and even many without—are being offered up to 12 months of forbearance, doled out in 90-day chunks. But this temporary fix could result in another wave of foreclosures if additional assistance isn’t provided.
Many homeowners could be asked to pay back all of those missed mortgage bills in one lump sum at the end of the forbearance period, a near impossible feat for many who can’t afford their payments today and don’t know when the economy will recover.
Fannie Mae, Freddie Mac, and the Federal Housing Administration say their borrowers, who make up slightly more than half of all buyers, are never required to make lump-sum payments. They also offer various assistance plans, some more generous than others.
But even those homeowners will also eventually have to make good on what they owe, a hardship for those out of work. Those who can’t could eventually lose their homes.
“We are concerned about what’s going on right now, with many people going into these forbearance plans without a clear sense of what will happen at the end,” says Joseph Sant, deputy general counsel for the Center for New York City Neighborhoods. The nonprofit organization promotes and protects affordable homeownership.
“If we don’t see further action from Congress to fill this hole … we could see another foreclosure crisis when these forbearances end,” warns Sant.
Before the pandemic, the foreclosure crisis that followed the housing bust and lingered after the Great Recession had seemed firmly in the rearview.
In January, just 0.4% of mortgages were in some stage of foreclosure, according to the most recent data released by real estate data company CoreLogic. Meanwhile, only 3.5% of mortgages were delinquent, which means they were at least 30 days late.
But there are troubling signs those numbers could rise. About 3.74% of all mortgages were in forbearance in the week ending April 5, according to the Mortgage Bankers Association, a national trade group. That’s compared with just 0.25% of loans in forbearance in the week ending March 2.
The association expects the number of homeowners requesting forbearance to steadily increase.
About 15 million homeowners could rely on forbearance to get them through this crisis, or nearly a third of all single-family mortgages, predicts Mark Zandi, chief economist at Moody’s Analytics.
That could result in roughly 2 million foreclosures, says Zandi. To put that into perspective, there were around 7 million foreclosures as a result of the last housing bust.
“I don’t think a lump sum works, at least for most homeowners,” says Zandi. If there isn’t additional assistance offered, “there will be a lot of credit problems down the road, delinquencies, defaults, and foreclosures.”
Sant, with the Center for New York City Neighborhoods, is worried about the lack of uniformity among mortgage assistance programs, particularly between government-backed loans and non-government-backed loans. So available help can vary even though many mortgage companies and servicers follow the steps that Fannie and Freddie take.
Instead of forbearance, Sant would like to see the creation of a program to keep mortgage payments affordable, similar to the one the federal government created after the housing bust of more than a decade ago. It helped to save more than a million homes from the clutches of foreclosures and short sales. The program granted things like loan modifications, which could lower monthly payments, and deferments, which tacked missed payments onto the ends of loans, thereby extending their duration. These actions helped homeowners remain in their properties.
Many of the government-backed loans offer similar options.
(However, the federal government’s Home Affordable Modification Program was widely criticized for not helping nearly enough homeowners. And about a third of the borrowers who participated in the program wound up falling behind on their mortgage payments again.)
“There tends to be this initial, naive hope [from government officials] that, let’s put the situation off, let’s pause for a few months and hopefully at the end of it, people will recover and they won’t need deeper relief,” says Sant. “But we need to be planning now to provide meaningful relief.”
Since the crisis began, Seattle-area business owner and author Debrena Jackson Gandy‘s income has dropped by about 30%. Her husband, an Uber driver, has seen his take-home pay fall by about 40%. And the couple were worried about paying both the first and second mortgages on their four-bedroom home in the Seattle suburb of Des Moines, WA.
So in late March, Jackson Gandy, 53, called her mortgage companies. The first one, where she has her primary mortgage, agreed to defer her April payment and add an extra payment onto the end of her loan. But her experience with Bank of America, where she has her smaller, second mortgage, didn’t go as smoothly.
The representative she spoke with offered her three months of forbearance instead. She could apply for a loan modification at the end of that period. There was no guarantee it would be granted.
“It was really shocking,” says Jackson Gandy. She runs Masterminds, a personal and organizational development company that hosts events, some of which have been moved online while others have been cancelled.
“If one month is a challenge, then how can I pay four months at once?” she asks.
(Bank of America offers deferments on its own loans, but it provides only forbearance, not deferments, on the government-backed loans it services. Chase is also a mortgage servicer for government-backed loans. Jackson Gandy isn’t sure if she has a federal-backed mortgage.)
“If you can make the payment, make the payment now,” says Rocke Andrews, a mortgage broker at Lending Arizona in Tucson. He’s also the president of the National Association of Mortgage Brokers, a trade group.
“Don’t take [forbearance] if you don’t absolutely need it. It all becomes due, and who knows what happens between now and then,” he advises.
Source: Clare Trapasso, Realtor.com
About Promise Properties
Promise Properties is a real estate investment company that removes the variables from the sales process and buys properties, in any condition or situation, directly from the owners. Promise Properties buys all types of real estate from single family homes to small apartment buildings to multifamily homes such as duplexes, triplexes, and quads throughout the country. If you are a property owner and have questions about avoiding foreclosure, if you’ve inherited a property you don’t want, if you’re tired of being a landlord or simply want to sell your property quickly and for the best price, contact Promise Properties today.