Good news for Americans who are being forced to skip mortgage payments amid rising unemployment. The White House is extending the foreclosure moratorium until the end of June for homeowners with mortgages backed by the Department of Housing and Urban Development, the Department of Veterans Affairs and the Department of Agriculture. Homeowners will also have until the end of June to request a forbearance, allowing them to pause monthly payments.
“Currently, approximately 5.4% of mortgages nationwide are in default, but about a quarter of these borrowers continue to make monthly payments. ”
Of the roughly 2.7 million borrowers who are in forbearance, about a quarter have continued to make their monthly payments, according to real estate data firm Black Knight. There are also about 1.1 million borrowers who are in default but did not enter into forbearance. What will happen to all of these mortgages when the forbearance ends remains an open question. But researchers at the Urban Institute, a think tank based in Washington, DC, projected that many people will be able to avoid foreclosure. “Loss mitigation policies and substantial home equity can keep foreclosures at bay in most states,” the researchers wrote. When borrowers come out of forbearance, they are not required to pay back all late payments at once in one balloon payment, although loan servicers do offer this option. Instead, they can request that the transferred amount be moved to the end of the life of their loan. That will allow borrowers to resume payments at the amount they were paying before the pandemic, without incurring additional costs. Of course, many borrowers will find home ownership generally unaffordable and may not be able to make their monthly payments again due to prolonged job loss. For most of these borrowers, the higher level of equity accumulated in their homes, especially compared to the foreclosure crisis that preceded the Great Recession, will serve as a buffer. Researchers at the Urban Institute calculated that less than 1% of mortgages nationwide have negative net worth, meaning the loan is larger than the home is worth. And only 5.5% of the loans were found to be near negative equity. After the Great Recession, nearly a third of homes had a negative or near negative equity value, they said. Home price gains over the past year have meant that most homeowners would be able to sell their property and get ahead in the sale, although home prices in some parts of the county, such as Chicago and Baltimore, remain low. below their record peaks. As a result, most homeowners in forbearance could afford to sell their home instead of going into foreclosure. Of course, these homeowners may have a hard time finding another home. And if the foreclosure numbers were to rise, that could start to impact home values across the country and push more people into negative equity. “Additional extension may be necessary,” wrote the Urban Institute researchers.