When the coronavirus pandemic shut down the economy in March, the mortgage industry felt the effects almost immediately as lenders rushed to offer payment deferrals and forbearance plans to homeowners experiencing financial hardships. Local, state and federal actions followed to provide further protections.
But with expanded federal jobless aid set to run out at the end of this month and a state foreclosure moratorium likely to expire almost three weeks later, concern is growing as the mortgage industry faces an uncertain summer and fall.
“The fear is that the end of the deferment and forbearance period doesn’t line up with folks getting their jobs back,” said Elliot Schmiedl, director of the homeownership program at the Massachusetts Housing Partnership.
Local, National Figures Vary
Passed in late March, the CARES Act allowed certain borrowers to receive forbearance if they attested to having a COVID-19-related financial hardship. For mortgages backed by Fannie Mae or Freddie Mac or guaranteed by a federal agency, including the Federal Housing Administration, forbearance can last up to 180 days, and borrowers can request another 180 days of relief.
The city of Boston in early April reached an agreement with a dozen lenders allowing homeowners to request at least three months of mortgage payment deferrals. This was followed on April 20 by a state law, known as Chapter 65, that said borrowers who have experienced financial difficulties because of COVID-19 could request mortgage forbearance up to 180 days.
Nationwide estimates show that more than 4 million borrowers have requested forbearance. The Mortgage Bankers Association for the week ending June 21 estimated that 4.2 borrowers had received forbearance, representing 8.48 percent of mortgage servicers’ portfolios. Data firm Black Knight estimated that for the week ending June 23, 4.68 million mortgages, or 8.8 percent, were in forbearance
Neither organization has released Massachusetts data yet, but Schmiedl expects similar rates for Massachusetts. MHP, which has a portfolio of about 11,000 loans for low- and moderate-income first-time homebuyers, has seen deferments in about 4 to 6 percent of loans. Another quasi-public agency with programs for first-time homebuyers, MassHousing, has seen forbearance requests for about 7 percent of its portfolio of 20,000 mortgages.
Mounzer Aylouche, MassHousing’s vice president of homeownership programs, said his agency has spent time explaining forbearance to its borrowers, many of whom did not understand that deferrals did not mean forgiveness. He added that some borrowers who entered into forbearance plans still have been able to make payments.
$600 ‘a Life-Saver’
While a COVID-19 financial hardship did not necessarily mean the borrower was laid off – some may have had hours reduced or a household member affected – Massachusetts has seen unemployment claims surge. Between March 15 and June 20, more than 1 million first-time applications have been made for state unemployment assistance.
Almost 30,000 individuals filed an initial unemployment claim during the week ending June 20, according to the state’s Department of Unemployment Assistance. More than 550,000 people had a continuing claim that week, meaning they had applied for at least two consecutive weeks.
The Executive Office of Labor and Workforce Development said the state’s estimated unemployment rate for May was 16.3 percent. The Bureau of Labor Statistics estimates the national unemployment rate is at 13.3 percent, though a classification issue with the survey could mean the national rate is closer to that in Massachusetts.
Even with a high unemployment rate, forbearance rates remain below 10 percent. One reason more people have not requested mortgage deferrals could be government aid. In addition to the $1,200–per–person one-time economic aid payments, the CARES Act also authorized an additional $600 per week to those receiving unemployment insurance.
“That extra $600 a week – the extended unemployment benefit – has probably been a life–saver for a lot of people,” Schmiedl said.
That weekly benefit runs out on July 31, and Congress has yet to authorize more aid.
Before the pandemic, homeowners generally repaid missed payments once the forbearance period ended. Now, for the most part, borrowers will not need to come up with a lump-sum payment to avoid foreclosure. Borrowers with FHA-guaranteed loans or those backed by Fannie and Freddie have several payment options available.
Under Chapter 65, Massachusetts homeowners that received forbearance will have the missed payments added to the end of the loan, unless the lender and borrower agree to a different payment option.
Some Safety Nets Exist
Another safety net for borrowers – a moratorium on foreclosures – was extended through Aug. 31 by both the Federal Housing Finance Agency, which oversees Fannie and Freddie, and the FHA.
Chapter 65 established a temporary moratorium on foreclosures in Massachusetts until Aug. 18 or 45 days after the COVID-19 emergency declaration has been lifted, whichever is sooner. The law allows Gov. Charlie Baker to extend the moratorium past Aug. 18.
When asked during a press conference on June 30 whether he would extend the moratorium, Baker said he was not ready to make a decision on the matter.
Homeowners still have some protections. State officials announced a $20 million fund on June 30, called the Emergency Rental and Mortgage Assistance program, that will use federal aid to help eligible low-income households make rent and mortgage payments.
Some homeowners have other protections. MassHousing offers a benefit with its private mortgage insurance that covers six months of mortgage payments for borrowers that have filed unemployment claims for four weeks. Through May, about 160 borrowers had already used the benefit, and Aylouche expects that number to rise as more people work through delays with the system and reach the four-week mark.
Even though many borrowers will be stronger coming out of forbearance compared to past economic crises, Aylouche said concerns remain, including obligations to investors.
“My concern is any mortgage lender’s [or] servicer’s concern – we want to see an end, we have the tools to get to that end, but we really don’t know what the horizon is,” Aylouche said. “It’s managing under uncertainty that kind of makes me stay awake at night.”
Schmiedl said lenders do not want to have to start foreclosure proceedings, and he said partnerships and government aid will be needed to continue to manage the crisis. He added that MHP’s data has shown that people of color are disproportionately at risk of not being able to repay their mortgage.
“There are disparities, and unfortunately, that falls in line with a lot of other COVID disparities,” Schmiedl said. “It’s not separated from the other conversations that are going on nationally about race and institutional racism and ways to do something about that – they’re interrelated.”