Homeowners keep postponing mortgage payments 

postponing mortgage payments

A promising sign of recovery in the economy devastated by the pandemic has stagnated: fewer borrowers are resuming mortgage payments.

The proportion of homeowners who are behind on their mortgage payments has steadily declined from June to November 2020. It shows that people are returning to work and the economy is starting to recover. But since November, when cases of Covid-19 increased in communities across the country, the decline has largely stabilized.

The number of homeowners in this group has fallen about 5.5% in the past two months, according to the Mortgage Bankers Association. Although the tolerance rate has fallen from a peak of 8.55% in June, some economists worry about the stagnation of tolerance and worry that it may even start to rise as jobs are lost in the economy.

The approximately 5.5% of borrowers in patience represent about 2.7 million owners, according to the MBA. (The rate dropped to 5.37% in early January.) At the peak of June, about 4.3 million homeowners were on tolerance plans, according to the MBA.

The federal Cares law, passed last March, gives borrowers the chance to delay payments of federally supported mortgages for up to 12 months. About 75% of U.S. mortgages are guaranteed or insured by the U.S. government, according to Black Knight Inc., a mortgage data firm.

Andy Walden, director of market research at Black Knight, said many homeowners may not be able to start making payments again when older plans begin to expire at the end of March.

According to Black Knight, only 35% of owners of tolerance programs that expired at the end of December had their tolerance removed by the first week of January. Over the past three months, that number has dropped by an average of 60%, which means more borrowers got an extension of tolerance plans in January. 

Homeowners on loans from the Federal Housing Administration are more likely to be forgiving than those with mortgages from Freddie Mac or Fannie Mae, the MBA data show. At the beginning of January, only 3.13% of Fannie and Freddie mortgages were under tolerance, compared with 7.67% for the FHA loans.

FHA borrowers typically have weaker credit, lower yields and payments than Fannie and Freddie borrowers. Unemployment during the pandemic was particularly hard on low-income workers, including those employed in restaurants, hotels, and shopping malls, which were hit hard by the home-based economy.

And those who find themselves needing to apply for mortgage relief in the near future may not be able to get it. The current deadline for signing with patience on many federally supported home loans is the end of February. President Biden has made a decision which Department of Housing and Urban Development and other agencies to extend the deadline until at least the end of March. 

Damon Harrison
Market Analyst, IPG Group