Coronavirus Crisis: At Least 2 Million U.S. Households Behind On Their Mortgage Payments

Millions of American households have fallen behind on their mortgage payments

The Mortgage Bankers Association, or MBA, said the percentage of U.S. mortgages in forbearance amounted to 3.74% in the week ended Apr. 5 – which means some 2 million households fell behind on their mortgage payments – up from 2.73% in the prior week.

In comparison, only 0.25% of all mortgages were in forbearance for the week ended Mar. 2.

As the coronavirus pandemic has shut down untold numbers of businesses and thrown millions out of work, more mortgage borrowers are asking lenders for a respite from their mortgage obligations.

Almost 17 million Americans have filed for unemployment claims in recent weeks.

MBA noted that mortgages securitized by Government National Mortgage Association, or Ginnie Mae, had the highest forbearance rate of 5.89% -- a 1.58% jump from the prior week.

Forbearance on loans backed by the Federal National Mortgage Association, or Fannie Mae, and the Federal Home Loan Mortgage Corporation, or Freddie Mac, jumped to a rate of 2.44% in the latest week.

The Coronavirus Aid, Relief, and. Economic Security, or CARES Act, allows borrowers with federally-backed mortgages to receive forbearance for up to 12 months without incurring late fees or penalties. (Mortgages which are not federally backed do not fall under the protection of the CARES Act.)

MBA also stated that loans backed by independent mortgage banks had a 4.17% forbearance rate, while banks posted a 3.63% forbearance share.

“The nationwide shutdown of the economy to slow the spread of COVID-19 continues to create hardships for millions of households, and more are contacting their [loan] servicers for relief,” said Mike Fratantoni, MBA’s senior vice president and chief economist. “The share of loans in forbearance grew the first week of April, and forbearance requests and [lender] call center volume further increased. With [virus] mitigation efforts seemingly in place for at least several more weeks, job losses will continue and the number of borrowers asking for forbearance will likely continue to rise at a rapid pace.”

Fratantoni added: "There was a decline in call center hold times and abandonment rates in the latest survey, which indicates the mortgage industry is adapting to the current environment by adding or reallocating staff and increasingly utilizing its websites to help borrowers."

Black Knight Data & Analytics warned that if the unemployment rate reaches 15%, more than 5 million mortgages will become past due.

However, given the unprecedented nature of the present crisis, forecasting becomes tricky.

"Trying to gauge the impact of COVID-19 on mortgage performance is as much an art right now as a science," said Data & Analytics President at Black Knight Ben Graboske. "The fact is that there is no true point of comparison in the nation's recent history for analysts to model against.”

Still, Graboske sought to compare the current scenario to the financial meltdown of 2008-2009.

“In the Great Recession, for example, the number of past-due mortgages tripled over four years, increasing by more than 5.5 million, as the unemployment rate rose relatively sharply from 4.5% in 2006 to 10% by the end of 2009," he said. "Using the Great Recession as a point of comparison, Black Knight's… modeling team looked at potential delinquencies under different unemployment scenarios, and at 10%, we could expect 2 million new mortgage delinquencies… If unemployment climbs to the 15% recently projected by Goldman Sachs, we could be looking at 5.5 million past-due mortgages.”

Should unemployment reach the 32% projected by the Federal Reserve Bank of St. Louis, Graboske added, the mortgage non-current rate could skyrocket to nearly 19%, with 10 million homeowners past due on their mortgages.

With respect to the effectiveness of forbearance programs during periods of crisis, Graboske cited that of the more than 140,000 seriously delinquent mortgages caused by the 2017 hurricane season, only 1% of homes were lost to foreclosure or short sale two years after the storms hit.

"[But] should [current] financial disruptions become more long-term, additional assistance programs may become necessary,” he said. “Of course, a surge of forbearance requests brings its own challenges, both operational and financial.”

Graboske noted mortgage servicers, who are already inundated with forbearance requests, still need to pay principal and interest advances to federally-backed securities holders, even if their borrowers are granted deferments on paying their mortgages. He added that even if only 5% of homeowners with government-sponsored enterprise (GSE)- or Ginnie Mae-securitized mortgages seek forbearance, those principal and interest costs would be more than $2.1 billion per month.

“At 10%, the monthly cost owed to securities holders would jump to $4.2 billion and at 20% to $8.48 billion,” he said. “While Ginnie Mae has announced a pass-through assistance program through which it will advance principal and interest payments to investors on behalf of servicers, at present there is no such program in place for mortgages backed by the GSEs. This remains a very fluid situation all around."