by Christy Bieber | Updated July 19, 2021 - First published on Oct. 12, 2020
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Will more homeowners get back on track with mortgage payments?
After the coronavirus pandemic hit the U.S. in full force in March, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law. Among its provisions, it offered relief for homeowners with federally backed mortgages, including loans guaranteed by the USDA, VA, or Fannie Mae and Freddie Mac.
The CARES Act allowed homeowners to request forbearance for up to 180 days, with the possibility to extend that for an additional 180 days if they are still in financial distress. During this period, no payments were due on home loans, and borrowers did not incur late payment penalties or risk foreclosure for nonpayment. Lenders must give homeowners options for making up the missed payments under the CARES Act, including adding the unpaid amount to their mortgage payments after the loan comes out of forbearance.
Now the initial 180-day period is coming to an end for many, and the number of active forbearances has dropped dramatically as a result.
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According to Black Knight, a data analytics and mortgage technology firm that tracks loans in forbearance, there was an 18% drop in the number of mortgage borrowers in active forbearance in the past week. This means 649,000 fewer homeowners have their mortgage payments on pause.
With this dramatic decline in the number of homeowners in forbearance, just 2.97 million borrowers are still enrolled in coronavirus-related forbearance plans authorized under the CARES Act. This is the first time since April that so few borrowers have had their payments paused. It also means the total number of active mortgages in forbearance has dropped from 6.8% last week to 5.6% this week.
This is good news, assuming that borrowers intend to resume repayment of their mortgages. However, the CARES Act allows borrowers to request another 180 days of forbearance if they need it, so it is possible some homeowners have temporarily dropped out of forbearance, but intend to pause payments again. Black Knight's economist and director of market research suggests, however, that these numbers are signs of long-term improvement, rather than just a blip as borrowers put off requesting further delays.
Black Knight also reports that another 800,000 mortgage loans are going to reach the end of their initial six-month forbearance periods within the next month, so the number of borrowers not actively paying their loans is likely to continue to fall.
While mortgage forbearance can be a lifeline when financial difficulties arise, pausing payments on a mortgage extends the time it takes to build up equity -- and ultimately pay off a home loan. It can also make the loan more expensive over time, due to paying interest for a longer period.
Those who are currently in forbearance who can afford to resume payments should consider doing so ASAP, as long as doing so doesn't compromise other essential financial goals.
Borrowers who are struggling with current mortgage payments should also look into whether refinancing could lower interest costs and bring payments more within their budgets. With mortgage rates currently near record lows, borrowers have an unprecedented opportunity to lower their rates for the life of their loan -- provided they have the income and credit to qualify.
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
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