Coronavirus Mortgage Bailouts Suddenly Swell As Homeowners Struggle

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Signage is located outside of Freddie Mac’s headquarters in McLean, Virginia, the United States, on Tuesday, October 1, 2019.Andrew Harrer | Bloomberg | Getty Images

After declining for three weeks, the number of borrowers delaying their monthly mortgage payments due to the coronavirus has increased sharply again.The number of active forbearance plans has increased by 79,000 over the past week, wiping out about half of the improvement since the peak on May 22, according to Black Knight, a technology and mortgage data company. In comparison, the number of borrowers on forbearance plans decreased by 57,000 the previous week. Increases have occurred every day in the past five business days.

As of Tuesday, 4.68 million homeowners were on hold plans, allowing them to delay mortgage payments for at least three months. This represents 8.8% of all active mortgages, up from 8.7% last week. Together, they represent just over $ 1 trillion in principal outstanding.

The CARES mortgage bailout package, which President Donald Trump promulgated in March, allows borrowers to default on monthly payments for at least three months and potentially up to a year. These payments can be made either in repayment plans, loan modifications, or when the home is sold or the mortgage refinanced.

While some borrowers who originally requested bailouts in March and April ended up making their monthly payments, the vast majority are no longer. The mortgage bailout numbers were expected to improve as the economy reopened and job losses slowed. But the outbreak is a red flag in the market that owners are still struggling as cases of coronavirus continue to increase in several states.

By loan type, 6.9% of all mortgages guaranteed by Fannie Mae and Freddie Mac and 12.5% ​​of all FHA / VA loans are currently subject to forbearance plans. 9.6% of loans in the form of private label securities or bank portfolios are also pending.

Volumes increased for all types of loans, but were most marked for FHA / VA loans. The FHA offers low down payment loans to borrowers with lower credit scores. These loans are popular among first time home buyers. The number of FHA / VA borrowers in forbearance plans increased by 42,000 last week, while loan forgiveness to businesses and non-government organizations increased by 25,000 and 12,000, respectively.

At current levels, mortgage managers may have to advance up to $ 3.5 billion a month to holders of government-guaranteed mortgage securities on Covid-19 defaulters. This adds up to a maximum of $ 1.4 billion in tax and insurance payments they have to make on behalf of borrowers.

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