Mortgage forbearance and other federal efforts reduced default and foreclosure risks
What GAO found
Many single-family mortgage borrowers who defaulted on their payments during the pandemic have used the expanded mortgage forbearance provision of the CARES Act. This provision allowed borrowers whose loans were insured, guaranteed, made directly, purchased or securitized by federal entities (approximately 75% of all mortgages) to temporarily suspend their monthly mortgage payments. Use of the forbearance provision peaked in May 2020 at around 7% of all single-family mortgages (around 3.4 million) and gradually declined to around 5% in February 2021, according to GAO’s analysis of the national mortgage database. In February 2021, about half of all borrowers who used forbearance during the pandemic remained in forbearance. Additionally, black and Hispanic borrowers, who were more likely to have been economically impacted by the pandemic, used forbearance at about twice the rate of white borrowers. Withholding was also more common among borrowers at higher risk of mortgage default, particularly first-time homebuyers, minorities, and low and moderate incomes with mortgages insured by the Federal Housing Administration. and rural home buyers with loans guaranteed by the Rural Housing Service. (see fig. 1).
Figure 1: Estimated percentage of mortgage loans for a family in forbearance, by type of loan (January 2020 to February 2021)
A small percentage of borrowers who defaulted on payments during the pandemic did not appeal for forbearance, less than 1% of those covered by the CARES Act. Still, borrowers who have not used forbearance may be at greater risk of default and foreclosure, according to GAO’s analysis of the National Mortgage Database. For example, these borrowers tended to have lower subprime credit scores, indicating a high risk of default, compared to borrowers who were current or forborne, who tended to have prime credit scores higher or close to the first. . Federal agencies and government-sponsored companies Fannie Mae and Freddie Mac (the companies) have taken steps to educate these borrowers about forbearance options, such as through direct phone calls and letters. Additionally, the Consumer Financial Protection Bureau (CFPB) changed mortgage management rules in June 2021 to require managers to discuss forbearance options with borrowers soon after any default.
Seizures declined dramatically during the pandemic due to federal moratoria that prohibited seizures. The number of foreclosed mortgages decreased by about 85% year-over-year from June 2019 to June 2020 and remained as low until February 2021, according to mortgage data provider Black Knight (see Fig. 2).
Figure 2: Number of single-family mortgage loans foreclosed, by month (June 2019-February 2021)
Note: Seizure data was only available up to February 2021 at the time of our review. The number of new foreclosures includes vacant and abandoned properties and unsecured federal loans, which the CARES Act did not cover.
Federal entities have taken additional steps to limit loan defaults and mortgage foreclosures linked to the pandemic. Federal housing agencies and businesses have expanded forbearance options to give borrowers additional time to enter and remain in forbearance. In addition, they streamlined and introduced new loss mitigation options to help borrowers restore loans after forbearance, including options to defer missed payments until the end of a mortgage. Borrowers with extended forbearances typically have large expected repayments – an average of $ 8,300 in February 2021, according to the National Mortgage Database. As a result, defaulting borrowers coming out of forbearance more often than not have a deferred repayment, according to the Mortgage Bankers Association. Additionally, CFPB’s amended mortgage management rules allow service providers to streamline the processing of loss mitigation measures and establish procedural safeguards to help limit preventable foreclosures through January 1, 2022.
The risk of an increase in defaults and foreclosures is further mitigated by the relatively strong position of borrowers’ equity due to rapid appreciation in house prices. Home equity, or the difference between a home’s current value and any outstanding loan balances, can help borrowers with lingering difficulties avoid foreclosure by allowing them to refinance their mortgage or sell their mortgage. house to pay off the remaining balance. According to GAO’s analysis of the National Mortgage Database, few borrowers (around 2%) who were past due or past due in February 2021 did not have home equity after taking into account of the appreciation in house prices. By comparison, during the peak of foreclosures in 2011 after the 2007-2009 financial crisis, about 17% of all borrowers and 44% of delinquent borrowers had no equity in their home (see Fig. 3). ).
Figure 3: Estimated Percentage of Single-Family Mortgage Borrowers with No Home Equity in 2020 and 2011, by Type and Loan Status
Why GAO did this study
Millions of mortgage borrowers continue to face financial challenges and potential housing instability during the COVID-19 pandemic. To address these concerns, Congress, federal agencies and businesses have offered borrowers the option of temporarily suspending mortgage payments and imposed a moratorium on foreclosures. Both provisions will begin to expire in the coming months.
The CARES Act includes a provision allowing GAO to monitor federal efforts related to COVID-19. This report examines (1) how mortgage forbearance may have contributed to housing stability during the pandemic, (2) federal efforts to educate delinquent borrowers about forbearance, and (3) federal efforts to limit risks of default and foreclosure after federal mortgage forbearance and foreclosure protections expire.
GAO analyzed data on mortgage performance and the characteristics of borrowers who used forbearance from the tolerance from January 2020 to February 2021 using the National Mortgage Database (a generalizable sample federally managed single family mortgages). The GAO also looked at data from Black Knight and the Mortgage Bankers Association on foreclosures and forbearance repayments. In addition, GAO asked representatives of federal entities about efforts to communicate with borrowers and limit the risk of default and foreclosure. To highlight potential risks, GAO also analyzed current trends in home equity among delinquent borrowers from the 2007-2009 financial crisis.
For more information, contact John Pendleton at (202) 512-8678 or [email protected]