The Mortgage Moratorium Winds Down (Really, This Time)

Two people sitting at a table looking stressed over money

After a year and a half of support from the government and lenders, mortgage forbearance plans will wind down through the last quarter of 2021.

Can homeowners cope?

By the Numbers: The Current Status of Homeowner Debt

About 53 million U.S. homes carry mortgage debt. The economic crisis related to Covid-19 impacted these households in the following ways:

  • More than 7 million federally backed mortgages were put on hold, using forbearance plans, since March 2020.
  • Over half a million homeowners faced the end of their forbearance plans by June 2021 while still owing late payments.
  • Well over a million homeowners are still in forbearance as of September 2021 — as the forbearance plans continue to wind down. Of all mortgage borrowers, 1.5 million now owe at least three months’ worth of back payments — making short sales or foreclosures possible scenarios for some.

Given that a million homeowners are in forbearance as of September versus the than 7 million that had originally put payments on hold, it seems homeowners are gradually getting back on track. Indeed, as Black Knight’s Mortgage Monitor shows, late payments due across the country delinquency are now down to their 2000-2005 averages — a healthy trend, overall.

But within the group still owing back payments, job and income challenges loom large. Low-income, Black and Hispanic borrowers make up a disproportionate number in this group.

Black borrowers pay thousands of dollars more than other mortgage holders, and tens of thousands more in homeownership costs over their lifetimes. See more in our Update: Black Homeownership 2021.

Available Loan Modification Options for Borrowers

In July 2021, the federal government and the home loan industry tossed some lifelines to struggling borrowers. The Biden administration extended the holds on foreclosures through July. Forbearance plans were extended through September, with three extra months added onto the timeline for some federal loan holders. Thus, at least foreclosures have been kept to a minimum so far.

As forbearance draws to a close:

Some borrowers will qualify for payment reductions. Some will get help with their loan and utility payments, thanks to the federal $9.961 billion assistance package. Additionally:

  • Conventional loans can be modified to allow gradual repayment of past-due debt through higher monthly mortgage payments, or repayment deferrals to the end of loans. Fannie Mae and Freddie Mac are offering modified principal and interest terms to homeowners with extended income losses.

The White House has stated that these provisions can:

  • Help mortgage borrowers stay in their homes.
  • Avert future payment struggles.
  • Advance the country’s recovery from pandemic-related financial setbacks.

Readers who may be struggling to make mortgage payments can check eligibility for loan modifications by calling the mortgage servicer that normally accepts their payments. 

Rule Helps Homeowners Who Aren’t Able to Sell

To continue averting a spate of foreclosures, the federal government has issued a rule through the remainder of 2021. Under a federal rule, mortgage companies have to track down homeowners before initiating a foreclosure. They must hold off until homeowners have explored other possible options — such as deferring the debt to the loan’s end, or lowering the required monthly payments.

Foreclosures can be initiated if the owners are unreachable for more than 90 days and their mortgage payments become at least four months overdue.

What about selling? That’s also an option — maybe. In a seller’s market, some homeowners could recover a good deal of money if they sell. The catch? The homeowners with the highest amounts of debt — people who might owe a year and a half of back payments, insurance premiums and property taxes — often have the least equity. So, in reality, they are not able to make the brisk seller’s market work for them.

Some will have no choice but to rent or move in with family or friends. That’s because rents are so high in this market as well.

Stressed-Out States

Person holding an empty wallet.

Some states are showing signs of stress. Mississippi has the highest number of renters behind on payments, so investor-owners are struggling, too. Almost 39% of South Carolinians are at risk for eviction — so the owners of their buildings have been going without rent income for some time.

In Pennsylvania, a court said Philadelphia sheriff’s sales and mortgage sales can continue, as of September 2021, where foreclosed owners are absent for their properties and ineligible for federal Covid-19 assistance. Notices are being sent out so the homeowners who do live on the properties can contest the notices. Some advocates worry that owner-occupied homes could be sold out from under their owners, as some could panic and ignore the notices.

The above are only some examples of the stress in many states. While states and cities struggle, the nearly $10 billion in federal mortgage and utility assistance is reaching recipients very slowly. The U.S. Treasury Department was maddeningly slow to ready its portal for states to submit fund distribution plans to help homeowners in dire need.

Thus, forbearance plans are winding down before many homeowners get the help that’s allocated for them.

A Tale of Two Borrowers

The outlook for the U.S. housing market is good through the final quarter of 2021. Demand has outstripped supply for many months now, pressing property values up. This is expected to be the case in 2022, too, as many potential buyers are still eager to find their homes and take out loans with enticingly low interest rates.

On the other side of this strong market? The people who have lost sources of income during an extended public health emergency.

Foreclosures have been kept artificially low, and that is clearly working out well for people in financial recovery. And yet, with some 1.5 million households poised to exit forbearance (as of September 2021) without the personal funds to manage their mortgages, a critical time still looms for our country’s most vulnerable homeowners. Solutions are complicated. They involve more efficient distribution of federal funding for mortgage assistance, the creation of good jobs, and more eyes on ensuring fairness in the housing market.

Supporting References

Consumer Financial Protection Bureau: CFPB Issues Rules to Facilitate Smooth Transition as Federal Foreclosure Protections Expire (Jun. 28, 2021).

Lance Lambert for Fortune: A Shock is Headed for the Housing Market (Sep. 5, 2021). 

Katie Collins for NextAdvisor (in partnership with Time): The Biden Administration Just Announced New Measures to Prevent Foreclosures. Here’s How to Use Them (Aug. 5, 2021).

Natalie Campisi for Forbes Advisor: Here’s What Will Happen When the Mortgage Forbearance Lifts (Aug 20, 2021).

Marina Affo for The Philadelphia Inquirer Philly Court Rules That Some Sheriff’s Sales Can Resume (May 27, 2021).

Molly Hulsey for the GSA Business Report: S.C. One of the Hardest Hit States as Foreclosure Moratorium Ends (Sep. 7, 2021).

Julia Ingram (with Chris Alcantara) for the Washington Post: A Tsunami of Deferred Debt Is About to Hit Homeowners No Longer Protected by a Foreclosure Moratorium (Aug. 1, 2021).

Photo credits: Mikhail Nilov, via Pexels, and Towfiqu barbhuiya, via Unsplash.