According to a study published by the New York Federal Reserve Blog, the current pool of US borrowers in forbearance is more vulnerable to delinquency at the end of the program, but that does not mean that delinquencies will approach the levels seen during the program. financial crisis.
A crucial part of the US policy response to the coronavirus crisis has been to reduce the risk of a housing crisis from a pandemic and a wave of foreclosures like that seen during the financial crisis. Important policy stemmed from the Cares Act which allowed borrowers with federally funded mortgages to suspend or reduce debt service payments for six months, with some agencies granting an additional 12 months extension.
The authors said the success of the program had sheltered borrowers, unlike the financial crisis “as ever-increasing delinquencies and foreclosures by consumers were both a driver of the financial crisis and then, in a vicious circle, a consequence of the crisis, as house prices fell and nearly 12 million Americans were foreclosed.
More than 6.1 million mortgage borrowers have abstained since the start of the pandemic, but many have sold their properties as house prices have risen due to demand for housing. More than 2 million are still looking for a loan payment holiday starting in March, and of those, 1.2 million had forborne in June of last year or earlier.
Borrowers with the highest credit scores before the pandemic were the least likely to seek relief and only a quarter of them remained in abstention, compared to those with lower credit scores before the pandemic, where the half were still in abstention, the authors said.
One manifestation of this is that their payout rate was lower than the payout rate of those who dropped out of abstention more quickly. As a result, in March, more than 70% of borrowers withheld were not making payments, a higher share than any month in 2020.
The severe delinquency rate could reach around 3.8% once the measure is over, if all of those borrowers become delinquent, the researchers said. This would be higher than the pre-pandemic rate of 1.3%, but lower than the levels seen during the financial crisis.
âNonetheless, from where we are now, it seems unlikely that the end of mortgage forbearance was associated with more than 6 percent of mortgages becoming 90 days or more past due, as happened during the Great Recession. “the researchers said.
The recovery of these borrowers will depend on the US recovery and policy measures.