When the coronavirus outbreak began, millions of jobs were lost overnight. Realizing that mortgage As borrowers will need help, lawmakers were quick to enact a rule giving homeowners the right to suspend loan payments for a specified period of time.
This is a concept known as patienceand it existed long before the start of the pandemic. The difference, however, is that in the period leading up to the pandemic, lenders were free to deny leniency to borrowers at their own discretion. This changed under the Coronavirus Relief, Relief and Economic Security (CARES) Act, a massive coronavirus relief bill signed in March 2020. It empowers any homeowner who witnessed financial hardship during the pandemic to abstain – they couldn’t say no.
Initially, the mortgage refusal period expired in 12 months, but given the ongoing economic and medical crisis, lawmakers extended it to 18 months. This means that homeowners who gave up loans early in the pandemic will have to start paying again this fall.
While that 18-month mark has yet to hit for those who paused mortgage lending early in the pandemic, the exit from leniency is still on the rise. In fact, mortgage loans fell 189,000 to 1.86 million in the week ending July 6, according to Black Knight. This is the first time the total number of deferred loans has fallen below 2 million since April 2020, when the reserve was first widely available to those affected by the pandemic.
Start your path to financial success with a bang
Get free access to select products we use to help us meet our financial goals. These fully proven options can be the solution to help boost your credit score, invest more profitably, create an emergency fund, and more.
By submitting your email address, you agree that we will send you monetary tips along with products and services that we believe may be of interest to you. You can unsubscribe at any time. Please read our Privacy statement as well as Terms and Conditions…
Is it a positive economic sign?
Currently, an estimated 3.5% of all active mortgage loans are on hold. And over the past month, the total number of deferred home loans fell by 254,000, which is a 12% decline.
What’s especially encouraging about these numbers is that the borrowers who waived their mortgages in April have not yet reached their 18-month maturity date. Thus, it is fair to assume that many of the recent withdrawals from tolerance we have seen were voluntary (rather than elapsed hours). And if homeowners decide to resume their mortgage payments, it is a sign that they are in good enough financial condition to do so. This means that the overall economy may finally improve.
The abstinence figures are not the only indication of economic recovery, however. Over the past few months, the number of weekly jobless claims has been lower than it was at the beginning of the year, and is much lower than the numbers we saw around the time the CARES Act was signed into law. And although the unemployment rate in the country increased slightly in June compared to May, this month also saw additional growth. 850,000 new jobs add to the economy, which turned out to be more than analysts expected.
The rise in the cost of goods and services also indicates a recovery in the economy. Big reason the inflation rate is so sharp right now lies in the fact that the demand for goods and services exceeds the available supply. And strong demand indicates a stronger financial position for Americans across the board.
Overall, the fact that abstinence rates are declining is good. And there is a good chance they will continue to do so as Americans, on an individual level, continue to recover from the impact of the pandemic.