When the coronavirus pandemic shut down the economy, the mortgage industry felt the effects almost immediately as homeowners began to request forbearances. Three months later, forbearances have continued, though some feared the impact could have been worse.
“One positive is that the number of homeowners who are requesting forbearance seems not to be as high as initially thought,” said Nandini Natarajan, executive director of the Connecticut Housing Finance Authority. “We thought the numbers would be 20 to 30 percent initially, and I think there was a fear that the numbers were going to be astronomical.”
Still, more than 10 percent of CHFA’s 14,000 mortgages for first-time homeowners received forbearance in May, a rate similar to national figures. With the pace of economic recovery and future government aid as unknowns, the length and severity of borrowers’ needs remains uncertain.
State and federal actions have so far protected Connecticut homeowners from losing their homes. For mortgages backed by Fannie Mae or Freddie Mac or guaranteed by a federal agency, the CARES Act allowed borrowers to receive forbearance if they attested to having a COVID-19-related financial hardship. Forbearance can last up to 180 days, and borrowers can request another 180 days of relief.
Another safety net for borrowers – a moratorium on foreclosures – was extended on Wednesday by both the Federal Housing Finance Agency and the Federal Housing Administration to Aug. 31.
Even without federally backed mortgages, Connecticut homeowners still have protections. Nearly 50 banks and credit unions continue to participate in the state’s Mortgage Relief Program. Originally set to expire on May 31 and then extended to July 30, the program provided streamlined options for forbearances and a foreclosure moratorium. A state judge has also delayed foreclosure activity until August.
Because about half of CHFA’s loans are backed by Fannie Mae or Freddie Mac and the rest are insured by a federal agency, CHFA has followed FHFA and FHA guidance on forbearance and foreclosures.
CHFA, which offers programs for first-time homebuyers through a network of community banks and larger institutions, had 1,500 loans, or 10.7 percent, receive forbearance in May, up from 750 in April. Nationally across all mortgage types, 8.55 percent of loans were in forbearance for the week ending June 7, according to the Mortgage Bankers Association weekly survey.
Not everybody in forbearance has missed mortgage payments. About 20 to 25 percent of CHFA’s borrowers have continued to make payments. Natarajan said some homeowners requested forbearance out of an abundance of caution, while for others, the $1,200 economic aid payment, along with additional funding provided by unemployment insurance, helped cover mortgage costs.
As borrowers come out of forbearance, those with federally backed or insured loans will not need to make up the missed payments in a lump sum. Both the FHFA and the FHA have set up repayment options for borrowers. The state of Connecticut has also encouraged banks and credit unions to offer options for borrowers to make up missed payments, including loan modifications and repaying missed payments at the end of the loan.
How soon borrowers will come out of forbearance remains unknown. Government assistance, including the $600 weekly addition to unemployment insurance scheduled to expire in July, has not yet been extended. Not all businesses have reopened, or even will. And some workers who have been rehired have seen their hours reduced.
Depending on the pace of the economic recovery, homeowners could continue to struggle with their mortgages.
“This could be a long recovery,” Natarajan said. “Ultimately, our goal is to make sure that we maintain our flexibility and our options continue to be open in terms of with what we can offer those folks that are in need of assistance.”
CHFA also has a portfolio of multifamily mortgages on its books. Natarajan said few forbearances were requested for these properties, though she said this could change as government aid expires.
Even as some existing homeowners struggle with mortgages, this has not stopped CHFA’s loan programs. Natarajan said first-time homebuyers have continued to find homes throughout the pandemic.
