Affected homeowners felt extra relief in June when the White House announced extending the CARES moratorium on federal-backed mortgage loans through July 31.
Today’s WatchBlog post reviews our new report about whether CARES housing protection protects people from losing their homes, and what happens to those who are still struggling after the renewal expires.
What home protection measures were available to homeowners?
Under the CARES Act, there were 2 protections for struggling homeowners – a period of mortgage withhold and a foreclosure moratorium.
Mortgage Cancellation Benefits under the CARES Act gave homeowners with federally backed mortgages the option to temporarily suspend their monthly mortgage payments. The CARES Act provided for a 12 month grace period, but the federal government extended the grace period to 18 months.
A moratorium has been imposed for homeowners at risk of foreclosure to prevent mortgage companies from initiating the seizure of properties owned by homeowners who were experiencing financial difficulties due to COVID-19. This housing protection applies only to federally backed mortgages, that is, home loans made, guaranteed, or securitized by the federal government. However, about 75% of US mortgages are government-backed. This includes mortgages issued by government lenders as well as VA loans, Rural Housing Services (part of the USDA) and FHA.
Did the protection work?
Abstaining from mortgages was widely used – an indication that it was a necessary relief for struggling homeowners. In May 2020, the use of the abstinence clause peaked at around 3.4 million mortgages, accounting for about 7% of all single-family home loans. In June 2020, the use of leniency dropped sharply as many borrowers who entered leniency immediately after the opportunity arose did not extend the term of use of this protection. As of February 2021, about 5% of active loans (about 2.1 million mortgages) were on hold, while payments were suspended.
The federal foreclosure moratorium also appears to have worked. The number of new foreclosures in June 2020 decreased by about 85% (about 6,000) compared to the same period in June 2019 (40,000) before the pandemic.
What happens when patience runs out?
At the end of the abstinence period, homeowners will need to discuss with their lenders or lenders how they can pay off the missed payments. We found that in February 2021, about 2.4 million borrowers missed 2 or more payments, equivalent to roughly 90% of 2.7 million abstinence mortgages.
On average, as of February, patient borrowers missed out – and will eventually have to pay back – 8 monthly mortgage payments totaling about $ 8,300. Many of these borrowers could face the risk of default or foreclosure at the end of the moratorium if they do not contact their service providers.
What happens when the foreclosure moratorium ends?
The Consumer Financial Protection Bureau (CFPB) has announced additional protection for homeowners facing foreclosure. This addition intends to limit foreclosures by January 1, 2022, adding conditions for maintenance personnel that must be met before foreclosure can be initiated on a property with a mortgage that became overdue during the pandemic.
What can homeowners do when these protections end?
Homeowners who have not yet exercised tolerance can do so by September 30th. If you are struggling to pay off your mortgage due to financial difficulties, resources and help are available to you. here via CFPB.
Additional steps may be taken to help homeowners. Federal agencies have made plans to continue supporting homeowners once these protections have ended. For example, federal housing agencies and businesses have rationalized and implemented new loss reduction options to help borrowers recover their loans after a deferral, including options to defer missed payments until the mortgage expires.
Check out our new report and a podcast with GAO’s John Pendleton to learn more about federal housing protections from COVID-19.
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