400,000 mortgage borrowers are "needlessly delinquent"

 By Kathleen Howley

There are about 400,000 mortgage borrowers “needlessly delinquent” as a result of the COVID-19 pandemic who did not use available forbearance options, according to a report from the Urban Institute.

These are borrowers with mortgages backed by the federal government who could have gotten help by getting a forbearance agreement, a right given to them by the CARES Act passed by Congress at the end of March, according to the report by Laurie Goodman and Michael Neal.

“These borrowers may not know they are eligible for forbearance or do know but wrongly fear having to make ‘double payments’ when the forbearance period ends,” the report said.

There is little difference in the creditworthiness of the borrowers, compared with borrowers who are in forbearance, the report said. The loans are spread across servicers, and “are almost equally likely to be serviced by banks and nonbanks,” it said.

The age of the loan was not a factor, per the report. The share of “needlessly delinquent” loans remained constant at about 2% regardless of the year of origination, the report said. Looking just at loans in forbearance, the share increases with more recent mortgages, the report said.

“Although some government messaging around forbearance options as an alternative has occurred, broader outreach may be in order,” the report said. “Servicers are an important part of this outreach, but outreach efforts must also include assistance from consumer groups.”

The U.S. forbearance rate measuring the share of mortgages with suspended payments fell to 6.81% in the last week of September, the lowest since mid-April, the Mortgage Banker Association said in a report on Monday.

The forbearance rate for Fannie Mae and Freddie Mac loans dropped seven basis points to 4.39%, while the rate for Ginnie Mae loans that include loans backed by the Federal Housing Administration increased one basis points to 9.16%.