Needy homeowners saw extra relief in June than the White House announced an extension of the CARES federal mortgage enforcement moratorium to July 31.
Today’s WatchBlog post deals with ours new report about whether the home protection under the CARES law protected people from losing their home and what happens to those who still have problems after the extension has expired.
What protective measures were available to homeowners?
Under the CARES Act, there were two protections in place for ailing homeowners – a deferral period on mortgage payments and a moratorium on foreclosures.
CARES mortgage forbearance allowances gave homeowners on government-backed mortgages the option to temporarily suspend their monthly mortgage payments. The CARES Act provided for a 12 month deferral, but federal agencies extended the deferral to 18 months.
A moratorium has been put in place on homeowners at risk of foreclosure to prevent mortgage administrators from initiating foreclosures on properties owned by homeowners who have been in dire financial straits due to COVID-19. This housing protection only covers mortgages secured by the federal government, ie home loans issued, guaranteed or securitized by federal authorities. However, approximately 75% of US mortgages are federally secured. These include mortgages issued by public lenders, as well as the VA, the Rural Housing Service (part of the USDA), and FHA loans.
Did the protection work?
Mortgage forbearance is rampant – an indication that it was a necessary relief for troubled homeowners. In May 2020, drawdowns on the forbearance provision peaked at around 3.4 million mortgages, which is around 7% of all single-family home loans. Forbearance utilization fell sharply in June 2020 as many borrowers who entered forbearance immediately after the option became available did not extend this protection. In February 2021, around 5% of active loans (around 2.1 million mortgages) were on hold, with payments on hold.
The federal moratorium on foreclosures also appeared to have worked. The new foreclosures in June 2020 were down about 85% (about 6,000) compared to the same point in June 2019 (40,000) before the pandemic.
What happens when the forbearance ends?
When the deferral period ends, homeowners will need to work with their loan service providers or lenders on how to repay defaulted payments. We found that in February 2021, about 2.4 million borrowers had missed two or more payments – that’s about 90% of the 2.7 million tolerated mortgages.
On average, borrowers who were tolerated in February had missed 8 monthly mortgage payments totaling about $ 8,300 and will eventually have to repay them. Many of these borrowers may be at risk of default or foreclosure after the moratorium expires if they fail to contact their service providers.
What happens when the moratorium on foreclosures ends?
The Consumer Financial Protection Bureau (CFPB) has announced additional protection for homeowners at risk of foreclosure. This addition aims to limit foreclosures until January 1, 2022 by adding conditions for servicers that must be met before foreclosure can be initiated on properties with mortgages that have defaulted during the pandemic.
What Can Home Owners Do When These Protections End?
Homeowners who have not yet taken the forbearance can do so until September 30th. If you are having difficulty paying your mortgage due to financial difficulties, resources and help are available to help Here by CFPB.
More action can be taken to help homeowners. Federal agencies have developed plans to continue helping homeowners after these protections expire. For example, government housing agencies and corporations have tightened and introduced new loss mitigation options to help borrowers recover their loans after a forbearance, including options to defer missed payments until the end of a mortgage.
Check out our new report and podcast with GAO’s John Pendleton to learn more about federal COVID-19 housing protection.
- Questions about the content of this post? Contact the WatchBlog team at [email protected].