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As Unemployment Claims Rise, So Do Missed Mortgage Payments
As Unemployment Claims Rise, So Do Missed Mortgage Payments
Over 22 million people have filed for unemployment benefits in the past 4 weeks. Many struggle with payments.
Black Knight reports More than 2.9 Million in Forbearance, 5.5% of All Mortgages
Key Details
- As of April 16, more than 2.9 million homeowners – or 5.5% of all mortgages – have entered into COVID-19 mortgage forbearance plans
- This population represents $651 billion in unpaid principal and includes 4.9% of all GSE-backed loans and 7.6% of FHA/VA loans
- At today’s level, mortgage servicers would be bound to advance $2.3 billion of principal and interest payments per month to holders of government-backed mortgage securities on COVID-19-related forbearances
- Another $1.1 billion per month in lost funds will be faced by those with portfolio-held or privately securitized mortgages
Forbearance Totals
Payment Forbearance Under Cares Act
On March 27, 2020, President Donald Trump signed the Coronavirus Aid, Relief, and Economic Security Act (also known as the CARES Act) into law. A provision of the CARES Act allows borrowers with federally backed mortgages to request temporary loan forbearance for up to 180 days. Borrowers also have the right to apply for an extension of another 180 days of forbearance.
Once a borrower requests hardship forbearance due to the COVID-19 pandemic, the act requires the servicer to offer a CARES Act forbearance.
Pitfalls
Forbes warns of Mortgage Forbearance Pitfalls.
John Ulzheimer, an Atlanta-based credit expert formerly of FICO and Equifax, warns of a potential balloon payment.
“If the lender or servicer demands that you pay back the deferred amount all at once or in an otherwise expedited manner, that could be impossible for the borrower.”
Unfortunately, having a mortgage servicer ask for a “balloon” payment once your forbearance period ends is a very real possibility. Borrowers from multiple national banks have reportedly been informed of the need to repay any delayed payments in a lump sum at a future date.
Three Things Not to Do
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$100 Increase In Monthly Mortgage Payment Would Sink 75% Of Canadian Homeowners
$100 Increase In Monthly Mortgage Payment Would Sink 75% Of Canadian Homeowners
According to a new survey from Manulife Bank, nearly 75% of Canadian homeowners would have difficulty paying their mortgage every month if their payments increased by as little as 10%. And, given that the average house in Canada costs roughly $200,000 and carries a monthly mortgage payment of $1,000, that means that most Canadians couldn’t incur and $100 hike in their monthly mortgage payments without possibly going under. Per CBC:
The bank polled 2,098 homeowners — between the ages of 20 to 69 with household incomes of $50,000 or higher — online in the first two weeks of February.Fourteen per cent of respondents to Manulife’s survey said they wouldn’t be able to withstand any increase in their monthly payments, while 38 per cent of those polled said they could withstand a payment hike of between one and five per cent before having difficulty. An additional 20 per cent said they could stomach a hike of between six and 10 per cent before feeling the pinch.
Add it all up, and that means 72 per cent of homeowners polled couldn’t withstand a hike of just 10 per cent from their current record lows.
Of course, such a huge sensitivity to small budget fluctuations isn’t a great sign when we’re in the midst of record-low interest rates and about to enter a period of sustained hikes.
“What these people don’t realize is that we’re at record low interest rates today,” said Rick Lunny, president and CEO of Manulife Bank.If mortgage rates increase by as little as one percentage point, some borrowers could be facing a hike of 10 per cent on their monthly bills. A bigger mortgage rate hike would bring more pain.
Meanwhile, 45% of millennials in the same survey said they had to borrow money from their parents to purchase their home and 25% admitted they have no savings.
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