Mortgage payment forbearance must be expanded

Foreclosure filings fell almost 41% in California last year, but rising unemployment and the current pandemic surge could cause rebound in missed loan payments.

By Jeff Lazerson | jlazerson@mortgagegrader.com | MortgageGrader.com | January 17, 2020

The economic recovery seems to be collapsing before our eyes.

Unemployment claims exploded to 965,000 during the week ending Jan. 9. That’s a spike of almost 20% from the previous week’s 784,000 layoffs.

Much more tragically, nearly 400,000 American lives have been lost to COVID-19, with 4,000 lives lost in a single day-for a second time. Almost 10% of the U.S. population has been infected with the COVID-19 virus.

Aside from the COVID-19 illness and death nightmare, what happens if you suffered a reduction or complete loss of income due to the pandemic?

What if you dodged the first bullet, but lost income during this recent resurgence?

Or, what if you’ve been financially struggling all along?

COVID-19 affected borrowers possessing federally backed mortgages (Fannie, Freddie, FHA and VA) are allowed up to 12 months of mortgage payment forbearance under the Cares Act, passed last March.

There are about 50 million U.S. mortgages, according to the Mortgage Bankers Association. Just under 5.5%, or 2.75 million, of those mortgages are in currently in forbearance, MBA lender survey data shows. Forbearances topped out at 8.55% last June 15.

About one-third of all mortgages (about 15 million) are outside of the Fan, Fred, FHA or VA bucket, according to the Urban Institute.

Any of those outside-the-box borrowers who got forbearance from their servicers were able to do so out of the goodness of their lenders’ hearts. The Cares Act doesn’t specifically cover them.

MBA lender survey numbers indicate just under 9% of those outside-the-box loans are currently in forbearance.

What about borrowers truly circling the drain? How many would be at risk of losing their homes to foreclosure without forbearance and foreclosure moratoriums across the country?

It’s anybody’s guess.

U.S. foreclosure filings dropped to a 16-year low in 2020, according to new figures from Attom Data Solutions. That’s more than 214,000 properties or 0.16% of all U.S. housing units.

California foreclosure filings fell to 22,136 last year, a drop of nearly 41% from 2019 filings.

Attom figures show a similar trend in Southern California: Filings fell 44% to 5,229 filings in Los Angeles County, 41% to 1,248 filings in Orange County, 39% to 2,318 filings in Riverside County and 38% to 2,096 filings in San Bernardino County.

But those numbers could do an about-face if mortgage forbearance doesn’t get extended until the pandemic is contained.

In addition, Congress and President-Elect Joe Biden should require mortgage forbearance for the 15 million mortgage holders not covered under the Cares Act and require borrowers to explain under oath how COVID-19 impaired their ability to make their house payments.

The pandemic is nobody’s fault. It’s the right and compassionate thing for Congress and the President to do.

We don’t want to see people lose their homes.

Freddie Mac rate news: The 30-year fixed rate averaged 2.79%, 14 whopping basis points higher than last week. The 15-year fixed rate averaged 2.23%, 7 basis points higher than last week.

The Mortgage Bankers Association reported a 16.7% increase in mortgage applications in the past week.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $548,250 loan, last year’s payment was $258 more than this week’s payment of $2,250.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with 1 point cost: A 30-year FHA at 2.125%, a 15-year conventional at 2%, a 30-year conventional at 2.5%, a 15-year conventional high-balance ($548,251 to $822,375) at 2.125%, a 30-year conventional high-balance at 2.625% and a jumbo 30-year fixed at 3.25%.

Eye catcher loan of the week: A 15-year fixed at 2.125% without points.

Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.