Reuters -- Near to half a million home owners in the United States, many of them minorities, are nearing the end of loan forbearance plans which allowed them to halt loan payments during the pandemic, presenting a test for mortgage service firms tasked with helping struggling borrowers move onto payment plans they can afford.
The number of borrowers exiting the plans is expected to increase over coming weeks as people who signed up early in the pandemic reach 18 - month limit forforbearance. While close to 80% of homeowners exited programs at some point in the pandemic have entered them, the remaining 20% tend to live in areas with higher shares of minorities or have low credit scores and lower incomes, research shows.
According to Brookings Institution research, their missed payments could add up to a postponed forbearance overhang of more than $15 billion in postponed mortgage payments.
When coupled with unemployment insurance expiring and other things happening at the same time, it s not clear that these folks will have an easy time coming out of this, said Amit Seru, a professor at Stanford Graduate School of Business and senior fellow at the Hoover Institution.
Many borrowers will be able to drive missed payments to the end of their loans and others will also be able to capitalize on a hot housing market to refinance or sell their homes. Homeowners facing hardships who signed up for extensions in later months may still be eligible for additional extensions.
The pandemic worsened racial disparities among homeowners. Black and Hispanic homeownership, disproportionately affected by pandemic-related job losses, were 30% more likely to fall behind on mortgages than the average borrower in the early months of the crisis between April and November of 2020, according to the Federal Reserve Bank of Philadelphia.
Approximately 7.6 million borrowers were still in forbearance plans at some point during the pandemic, representing about 15% of all mortgage holders, and roughly 1.25 million borrowers were still waiting in forbearance plans in mid-October, according to Black Knight, a mortgage technology and data provider.
It estimates that about 850,000 homeowners who participated in forbearance were in plans to expire this year, including those who already had exhausted their options. Roughly half of these homeowners have loans backed by the Department of Veterans Affairs or the Federal Housing Administration.
Those loans, which frequently require lower down payments and lower credit scores, are often used by first time borrowers, low-income home buyers and minorities. FHA loans were for instance used by 37% of minority home buyers in 2019 according to the Department of Housing and Urban Development.
How easily those homeowners move into another plan after their forbearance programs end will be monitored in the weeks ahead by regulators and others.
We're going to watch closely, said Mark McArdle, assistant director of mortgage markets for the Consumer Financial Protection Bureau.
The CFPB ramped up scrutiny of mortgage servicers over the matter this spring and finalized new protections for homeowners struggling to make mortgage payments due to the pandemic in June. However, foreclosures will be allowed to resume once the extra protections have been met.
The process can be confusing.
Shortly after Forbearance ended in August for Marvin Williams, he learned his loan would be transferred to another servicer.
For longer than a month Williams said it was not clear whether the new company would defer his missed mortgage payments - adding up to at least $8,000 - to the end of his loan or if he would have to repay it sooner.
Williams, 63, said he often endured two-hour waits at the phone when trying to call the servicer. On Wednesday, the housing counselor helping him with his case was told that payments would be deferred, but Williams said he's still waiting for written confirmation. Borrowers exiting forbearance can generally choose between resuming payments and having deferred debt sold or refinancing to the end of their mortgage; having loans modified so monthly payments are reduced; or paying back the debt by selling the home or updating the debt.
The pace of forbearance exits climbed in September and will likely hit the highest rate in more than one year in the next few weeks, said Mike Fratantoni, Senior Vice President and Chief Economist of the Mortgage Bankers Association.
Insurance companies hired more workers and are well prepared for the higher case load, Fratantoni said. It is such a stark comparison to what happened ten years ago when everyone was so frustrated with the speed of resolution that came out the great financial crisis. Servicers - who receive payments from borrowers and disburse them to investors, tax authorities and insurers - have simplified the process for moving to alternative ways so homeowners need to provide little or no additional documentation.
About 35% of borrowers who executed in September forbearance resumed paying and deferred missed payments to the end of their loan, according to the MBA. About 28% exited their loans and 19% put them in non-working condition, including many still working toward a loan modification, said Fratantoni.
The boom in home prices, up over 30% since the pandemic began, may help. About 93% of borrowers in forbearance have at least 10% equity in their home even after 18 months of missed payments, according to Black Knight After the Great Recession, by contrast, 28% of borrowers owed more on their mortgages than their homes were worth.