The mortgage delinquency rate jumped nearly four percentage points to 8.22% during the second quarter of 2020, when the economic fallout from the coronavirus pandemic really began taking hold, a new report from the Mortgage Bankers Association shows.
FHA loans—popular among first-time homebuyers who might not have the savings to make a big down payment—led the pack in delinquencies, rocketing to 15.6% past due, according to the National Delinquency Survey. That’s almost double the rate for all loans and the highest delinquency rate since MBA began its record in 1979. The delinquency rate includes loans that are at least one payment past due, as well as loans in forbearance, but does not include mortgages in foreclosure.
“The COVID-19 pandemic’s effects on some homeowners’ ability to make their mortgage payments could not be more apparent,” says Marina Walsh, vice president of industry analysis in MBA’s research and economics department. “The nearly 4 percentage point jump in the delinquency rate was the biggest quarterly rise in the history of MBA’s survey.”
The news comes as mortgages in forbearance fell for the ninth week in a row, to 7.21%. So why are delinquencies rising as forbearance numbers are falling, especially since the government’s first stimulus bill allowed up to 360 days forbearance on many mortgages?
The answer may lie, in part, in what’s not covered by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Some 30% of mortgages are held by lenders that are not beholden to CARES Act rules, which only apply to mortgages backed by the government, including Fannie Mae, Freddie Mac and Ginnie Mae loans.
What’s more, there are likely borrowers who don’t know they qualify for forbearance under the CARES Act.
Low-Income Borrowers More Likely to Face Delinquency
Not all mortgage types were affected at the same rate, the MBA data shows. Loans designed to help low-income and first-time homebuyers were impacted the most.
FHA delinquencies topped the list, rising 643 basis points from the first quarter. A basis point is one one-hundredth of a percentage point. Delinquent VA loans increased by 381 basis points, followed by conventional mortgages with a 307 basis-point increase.
FHA loans tend to have higher delinquency rates than other loans because they’re geared toward low-income borrowers or folks with a smaller down payment and lower credit score.
Borrowers Who Most Need Mortgage Relief May Not Know Their Options
Although the CARES Act has been widely publicized, its forbearance feature doesn’t appear to be all that well known. More than half of mortgage holders (56%) don’t know that there are relief options available if they suffer financial hardship due to the coronavirus, according to Fannie Mae’s August National Housing Survey.
Low-income borrowers made up the bulk of people who were not aware of available assistance, according to the survey of more than 3,000 people.
Hispanic borrowers made up the largest share of borrowers who reported not being familiar with relief options (65%), followed by Black borrowers (51%), white borrowers (41%) and Asian borrowers (8%).
There’s a massive disconnect between borrowers, their lenders and how the relief message is being disseminated, says Anna DeSimone, a personal finance expert and author of “Housing Finance 2020.”
“Delinquencies in America have been a problem because consumers are not able to have that one-on-one conversation with their lenders,” DeSimone says. “They might not even know who their current servicer is because the loan has been sold 800 times. If consumers are not getting proper notices about loan relief options and they’re not able to contact lenders, you’re going to see delinquencies rise.”
Lenders and organizations in charge of helping borrowers find relief should also make sure their information is available in multiple languages. Approximately 5.3 million U.S. heads of household have limited or no ability to speak English, according to a report by the Urban Institute.
Part of the problem is a language barrier, DeSimone says, but also some borrowers who are behind in payments might not realize there are laws protecting them, “so they avoid answering the phone because they’re scared it’s a collection agency.”
Lenders can do more, DeSimone says. Instead of just making phone calls to delinquent borrowers, they should put friendly videos about forbearance options on their Facebook page or website.
Can’t Pay Your Mortgage? Here’s What to Do
The first thing homeowners facing financial hardship because of the coronavirus should do is to find out if their loan is backed by the government. If it is, then they’re covered under the CARES Act. This means they will qualify for mortgage forbearance by simply telling their lender they can’t afford their mortgage bill. There’s no proof of hardship or documentation required.
But you have to take that first step, even if you haven’t yet missed a payment.
“It’s important to call before the loan becomes past due,” says Janelle Allison, vice president of mortgage resolution at Navy Federal Credit Union. “This advice holds true even if you’ve already been extended a forbearance as a result of the pandemic. These are unprecedented times, and some lenders will try and work with homeowners as the economy looks to rebound.”
Loans owned by Fannie Mae, Freddie Mac or Ginnie Mae qualify for mortgage forbearance under the CARES Act, which can last up to six months, with the option to extend forbearance for another six months.
Both Fannie Mae and Freddie Mac provide loan lookup tools, which you can use to determine if your mortgage is held by one of the big government-sponsored enterprises. Remember, the company you make your mortgage payment to may not own your loan.
Borrowers not covered by the CARES Act should contact their lenders, as well. In many instances, lenders are working with borrowers to come up with a plan that is affordable.
However, for borrowers who are not receiving help from their lenders either because they cannot contact them or the lender is not able to offer a plan that is financially feasible, they should get in touch with a Department of Housing and Urban Development-approved housing counseling agency.
“A counseling agency can help resolve mortgage delinquency and default issues,” says Leslie Tayne, a debt settlement attorney based in New York. “Borrowers can also try multiple forms of communication if they can’t get in touch with their servicer, from email to online chat. Finally, they can file a complaint with the Consumer Financial Protection Bureau (CFPB).”