The Urban Institute (UI) estimates that there are
about 400,000 homeowners who have become “needlessly delinquent” as a result of
the COVID-19 pandemic.  UI analysts
Michael Neal and Linda Goodman credit the Coronavirus Aid, Relief, and Economic Security (CARES) Act
with providing “a much-needed lifeline” during the crisis, but conclude that
there needs to be a broader approach.

The CARES
Act allows borrowers to defer mortgage payments for six months with the
possibility to extend that period for another six months. Homeowners need only
to attest to having a pandemic-related financial hardship. The Mortgage Bankers
Association (MBA), which has tracked forbearance plans on a weekly basis,
reported that as of September 28, 6.87 percent of mortgage borrowers are in
forbearance, including 4.46 percent of borrowers with Fannie Mae and Freddie
Mac mortgages and 9.15 percent of borrowers with Ginnie Mae (VA/FHA) mortgages.
About a quarter of these borrowers have continued to make mortgage payments,
apparently entering forbearance as an insurance policy, but many eligible
borrowers have not taken advantage of the benefit and have fallen behind on
their payments.  

Goodman and Neal say these estimated
400,000 homeowners may not know they are eligible for forbearance or do know
but wrongly fear having to make “double payments” when the forbearance period
ends. The analysts developed a methodology using delinquency rates for Ginnie
Mae mortgages for March and July that allowed them to determine whether loans
current  in March were delinquent in July
and whether they were in forbearance at that point.

That data provides information on
more than 200,000 Ginnie Mae borrowers who were current in March but were at
least 30 days delinquent by July. There was not equivalent data for GSE (Fannie
Mae and Freddie Mac) loans, but almost half of needlessly delinquent borrowers
are in the Ginnie Mae sample. The authors found four key characteristics of these
borrowers.


  • There is no difference in borrowers’
    creditworthiness.
    The credit scores of the needlessly delinquent group and the
    559,506 delinquent borrowers in forbearance were between 662 and 664.
  • There is little difference attributable to types of servicing.
    The shares of needlessly delinquent loans serviced by banks and nonbanks were around
    2 percent, with banks slightly higher and nonbanks slightly lower. In contrast,
    banks have a lower share of delinquent loans in forbearance than their nonbank
    counterparts (6.2 percent versus 3.2 percent) with some of the difference due
    to the dataset used. Servicers are permitted to buy delinquent loans out of a
    security when the loan becomes 90 days delinquent. Bank servicers find this
    practice beneficial, as they have the cash to do the payout, and their cost of
    funds is lower than the rate on the mortgage. Nonbank servicers often do not
    have the cash, and their cost of funds is higher than the rate on the mortgage,
    making a buyout less economic.
  • Loan vintage was not a factor for needless delinquency. The
    share of those loans remains constant at around 2 percent, regardless of the
    year of origination. In contrast, the share of delinquent borrowers taking
    advantage of forbearance increases with more recent mortgages.

Needlessly delinquent loans have no
strong geographic concentration. They are constant across states at about 2
percent. However, the rate for delinquent loans in forbearance varies widely,
from a low of 2.86 percent in Montana and Arkansas to high of 8.86 percent in
New Jersey.

 

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The authors admit they had hoped to
find a concentration of needlessly delinquent borrowers among certain
servicers, in specific geographic areas or vintage years. This would make
outreach easier. Instead they found about 2 percent of Ginnie Mae borrowers fell
into the “needless” category across all variables, suggesting that any outreach
campaign must be broad. “Servicers are an important part of this outreach, but
outreach efforts must also include assistance from consumer groups. Although
some government messaging around forbearance options as an alternative has
occurred, broader outreach may be in order.”

By Jann Swanson , dated 2020-10-06 11:24:33

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Courtesy of Mortgage News Daily

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