Fewer Homeowners Are Pausing Their Mortgage Payments, and That's a Good Sign

More homeowners keeping up with housing payments is a sign that the economy may be improving.

Millions of Americans have struggled financially in the wake of the COVID-19 pandemic and the recession it's caused. That includes homeowners having trouble paying their mortgages.

If you've lost your job or seen your income decline during the pandemic, it pays to put your mortgage into forbearance if you think you're at risk of falling behind on your payments. With forbearance, you hit pause on your mortgage payments for a time. Right now, you can request up to 360 days of forbearance due to the economic crisis.

But fewer Americans are taking advantage of that option than initially were. In fact, the Mortgage Bankers Association reported this week that the number of U.S. mortgages in forbearance declined for the second week in a row, and it's now at its lowest level since mid-April.

That's positive news in several regards. First, it could be a sign that jobs are picking back up. The U.S. unemployment rate peaked in April at 14.7% before falling to 10.2% in July. And while we don't have the data for August yet, it's reasonable to assume that if fewer home loans are in forbearance, Americans are in a better position to pay their mortgages -- perhaps enabled by a job.

Let's also keep in mind that in late July, the CARES Act $600 weekly boost to unemployment payments expired, which means jobless homeowners have received less money with which to pay their mortgages. A lower forbearance rate may be a sign that jobs are coming back, and that the economy may slowly but surely be recovering.

Should you put your mortgage into forbearance?

If financial troubles are making it difficult to pay your mortgage, it may be smart to ask your lender to put your loan into forbearance. While forbearance doesn't make your monthly mortgage payments go away, it does let you pause them until you can get back on your feet.

The great thing about forbearance is that you don't have to stop paying your mortgage. At the same time, if you need to skip a payment, it won't be a black mark on your credit report. The fact that your mortgage is in forbearance won't hurt your credit right now, either. Thanks to the CARES Act, forbearance may appear on your credit report, but it can't be recorded as negative activity that lowers your score.

Will the forbearance rate keep dropping?

It's a little too soon to know. A lot will depend on what unemployment looks like in the coming months, and what sort of economic aid is available. Lawmakers have stalled on a second COVID-19 relief package -- one that may or may not come with a second stimulus check. Therefore, while it's hard to predict what the forbearance rate will look like in the coming weeks or months, the fact that it's gone down recently is certainly a positive.