By Jacob Passy, MarketWatch
Although the economy has shown significant signs of improvement in 2021 thus far, many homeowners continue to face financial challenges. A new report from the Consumer Financial Protection Bureau finds significant disparities among which Americans have encountered those hurdles.
As of March, around 4.7% of all active mortgage loans remained in forbearance, the CFPB estimated, while roughly 0.5% of loans were believed to be 60 or more days delinquent. The forbearance programs put in place by federal lawmakers in 2020 allow mortgage borrowers to postpone making their monthly payments if they’re experiencing financial hardship. At the end of forbearance, servicers are supposed to provide these homeowners with a range of options to handle the unpaid debt that accrued over during that time.
Many homeowners who requested forbearance at the start of the pandemic have already resumed making their monthly payments. The remaining homeowners who are still taking advantage of the payment relief are more likely to be people of color, have less equity in their home and to have faced challenges paying off their debt prior to COVID-19.
As with other financial indicators, the CFPB found there were significant disparities based on race and ethnicity in whether a borrower was likely to still be in forbearance on their home loan as of March. More than 9% of Black mortgage borrowers were in forbearance, while the same was true of more than 8% of Hispanic borrowers. In both cases, that’s significantly higher than the forbearance rate among white borrowers, of whom less than 4% are in forbearance.
“Tract-level characteristics also matter, with forbearance and delinquency being significantly more likely in majority-minority census tracts and in tracts with lower relative income,” the CFPB researchers wrote.
But the group of borrowers who were most likely to be in forbearance as of March were those who were already behind on their mortgage payments before the pandemic began. The CFPB found that 18.6% of borrowers who were 30 or more days delinquent on their loans as of February 2020 were in forbearance as of March 2021. That’s more than four times higher than the percentage of borrowers who are now in forbearance but were current on their mortgage before the pandemic.
Additionally, homeowners who have less equity built up in their home were more likely to still be in distress. More than 15% of borrowers who had a loan-to-value ratio above 95% were in forbearance on their mortgage, while nearly 9% of borrowers with a loan-to-value ratio of between 80% and 95% were in the same situation. In many cases, these borrowers likely took advantage of programs that allowed them to purchase homes with a small down payment, including the FHA program that only requires a 3.5% down payment.
Consumer complaints about their mortgages are rising
A separate report from the CFPB, meanwhile, showed that consumer complaints regarding mortgages had risen significantly in March to the highest volume in nearly three years.
“Mortgage complaint volume has remained relatively steady since January 2020, averaging around 2,500 complaints per month,” the agency stated in the bulletin. “In March 2021, however, the volume of mortgage complaints increased to more than 3,400 — the greatest monthly mortgage complaint volume since April 2018.”
One of the more common topics cited in these complaints was concern about communications from mortgage servicers to borrowers who were still in forbearance.
“Some consumers expressed frustration that servicers did not communicate clearly about which relief options would be available when their forbearance period ended,” the report noted. “In particular, some of these consumers were concerned about what would happen to forborne payments and about whether they could extend a forbearance period.”
Consumers also reported experiencing delays or denials for certain relief options at the end of forbearance, including loan modifications. In some cases, mortgage servicers told the CFPB that the denials or delays were the result of receiving incomplete information from the borrower to process their request or because the borrowers did not meet the necessary specifications to receive that relief.
The CFPB has taken steps in recent months to boost protections for struggling homeowners. In April, the agency proposed a rule that would prevent servicers from starting foreclosure proceedings until 2022, while streamlining the loan-modification and loss-mitigation options and processes for borrowers. The bureau has also signaled that it will keep a close eye on servicers to ensure they are meeting borrowers’ needs, suggesting that the companies ramp up their hiring to ensure they have enough staff to handle requests.