Despite CARES, 1M homes behind in payments
Mortgage holders falling through gaps
More than 1 million homeowners are at least 30 days behind on their mortgage payments despite aid from the CARES Act, a sign that the law meant to ease financial stress and ward off foreclosures has let many fall through the cracks, data from real estate analytics company Black Knight shows.
Misconceptions, a lack of awareness and, in Houston, bad experiences with mortgage relief programs in the aftermath of Hurricane Harvey have led to the pitfall, say housing counselors. The problem has led some in both the House and Senate to call for automatically enrolling borrowers who are 60 days behind on their mortgages into forbearance, or a temporary reduction or pause in payments. A disproportionate share of minor ities were failing to take advantage of forbearance, according to Census data.
“An automatic forbearance would allow homeowners who do not reach out to their servicers a needed pause so they can have the opportunity to limit their arrearage, minimize fees and work with the servicer before they find themselves in a foreclosure,” argued Alys Cohen, staff attorney for the National Consumer Law Center, in a July16 House committee meeting on how to protect homeowners during the pandemic. “Given the disparities in accessing mortgage help right now, adopting this policy would help prevent a huge wave of foreclosures in Black and Latinx communities in the near future.”
TheCARESAct, passed byCongress in March to relieve the economic devastation caused by the novel coronavirus, gave homeowners who are struggling financially the right to take up to 360 days of forbearance if their mort-
gages are backed by the federal government.
The majority of the homeownerswho have fallen behind on their mortgage payments likely fall into that category — 680,000, or 62 percent, are federally backed, according to Black Knight. Homeowners with loans not backed by government-sponsored mortgage-finance companies such as Fannie Mae and Freddie Mac also can request forbearance.
In fact, a higher share of loans held by banks and private-label securities are in forbearance than those held by Fannie Mae and Freddie Mac: 10.5 percent, compared to 4.6 percent, according to the Mortgage Brokers Association.
“I can’t say it’s 100 percent across the board,” said Ellie Pepper, head of relationships and innovations for the National Housing Resource Center, of forbearance options offered for loans not backed by the government. “But we’re seeing and hearing that a lot of them are offering something.”
However, some Houston housing counselors, who provide homeowners free mortgage advice, said some clients are wary of forbearance because of the way it was rolled out after Hurricane Harvey. Homeowners impacted by the natural disaster were allowed to pause payments on their mortgages for six months, but all six months’ worth of payments were due in a lumpsumpayment when the period came to an end.
“So many families, after Hurricane Harvey, fell victim to some practices where they were not aware (that) at the end of the deferral period, all of those dollars became due,” said Kathy Payton, chief executive of Fifth Ward Community Redevelopment, which offers free housing counseling. “So some families are distrustful of the lending environment. They think it’s set up for failure.”
There are key differences between forbearance provided by the CARES Act and forbearance in the wake of Harvey.
Homeowners experiencing financial stress because of COVID-19 and whose mortgages are backed by the federal government are protected from lump sum payments if they would prefer to make other arrangements. Those can include a repayment agreement that involves making up the missed payments over time; a partial claim, which involves making up the missed payments at the end of the loan; or a modification, which may change the interest rate or number of years the mortgage will last. A housing counselor approved by the Department of Housing and Urban Development will be familiarwith the options and can provide free guidance to homeowners on how to communicate with their servicers.
The National Housing Resource Center surveyed housing counselors in July about problems faced by homeowners. Nine out of 10 counselors said they had heard from families who are delinquent, or about to become delinquent, on their mortgage payments.
The majority of counselors — 70 percent — said they had clients who knew about forbearance but were afraid they would have to pay a lump sum repayment at the end of forbearance, which is not true for federally backed mortgages and can be negotiated with servicers for other types of mortgages. Fiftyseven percent said they had also had clients who were unaware forbearance was an option.
Housing counselors have also reported hearing about forbearance-related scams. As a result, when a homeowner receives a letter promising relief on mortgage payments, they may not be sure whether it’s legitimate, Pepper explained.
Pepper recommended that homeowners who are struggling financially reach out to a HUD-approved housing counselor to talk through options.
“In the financial crisis, it was proven that people who worked with a HUD counseling agency ( got better loan modification options) than people who did not go through a housing counseling agency,” she said. “Different lenders work in different ways, but the bottom line is that’s something the housing counselor can help figure out.”