WASHINGTON–Moratoriums put in place by the federal government on mortgage foreclosures during the pandemic helped reduce foreclosures by 85% from June 2019 to June 2020, with foreclosures remaining low through February 2021, according to a new report from the Government Accountability Office (GAO).
The GAO report further said use of the forbearance provision of the CARES Act, which was available to about 75% of all mortgages, peaked in May 2020 at about 7% of all single-family mortgages (approximately 3.4 million) and gradually declined to about 5% by February 2021.
The Key Findings
Other key findings in the GAO report include:
- Black and Hispanic borrowers, who more likely to have been economically affected by the pandemic, used forbearance at about twice the rate of White borrowers.
- Forbearance was more common among borrowers at a greater risk of mortgage default – specifically, first-time, minority, and low- and moderate-income homebuyers with mortgages insured by the Federal Housing Administration and rural homebuyers with loans guaranteed by the Rural Housing Service.
- Less than 1% of those covered by the CARES Act who missed payments during the pandemic have not used forbearance. These borrowers may be at a greater risk of default and foreclosure; for example, they tended to have lower subprime credit scores, indicating an elevated risk of default compared with others, according to GAO.
Why Not Use Forbearance?
Why didn’t some borrowers use forbearance? GAO said it found the reasons included misunderstanding how repayment is handled (gradually over time, and not the lump-sum payment some servicers’ websites reportedly have noted) and distrust of mortgage servicers following the large number of foreclosures that grew from the financial crisis of 2007-2009. It also noted inconsistencies early on in how servicers communicated the available options to borrowers.
The GAO report found borrowers in extended forbearances generally have large, expected repayments, with an average of $8,300 as of February 2021, according to the National Mortgage Database. Citing data from the Mortgage Bankers Association, it said delinquent borrowers exiting forbearance have most commonly deferred repayment.
The current federal foreclosure moratorium ends July 31.
Other Factors
GAO said in the report it found other factors also offset the prospect of a spike in defaults and foreclosures, including:
- The Consumer Financial Protection Bureau’s (CFPB) revised mortgage servicing rules, which helped to limit avoidable foreclosures until Jan. 1, 2022.
- The fact borrowers have a relatively strong equity position due to rapid home price appreciation (making it possible for them to refinance or sell their homes to repay loan balances). The report notes that only about 2% of borrowers in forbearance or delinquent in February 2021 did not have home equity after accounting for home price appreciation; by contrast, 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 home equity.
Basis For Report
For its report, the GAO said it analyzed data on mortgage performance and the characteristics of borrowers who used forbearance from January 2020 to February 2021 using the National Mortgage Database, and reviewed data from Black Knight and the Mortgage Bankers Association.
GAO said the report was conducted in accordance with a CARES Act provision that it monitor federal efforts related to COVID-19 and that it examine:
- The extent to which mortgage forbearance may have contributed to housing stability during the pandemic
- Federal efforts to promote awareness of forbearance among delinquent borrowers
- Federal efforts to limit mortgage default and foreclosure risks after federal mortgage forbearance and foreclosure protections expire