GAO report cites positive impacts of foreclosure moratoriums, CARES Act forbearance measures

Federal moratoriums on mortgage foreclosures during the pandemic helped push foreclosures down some 85% from June 2019 to June 2020, and foreclosures remained low through February 2021, a report by the congressional watchdog shows.

The Government Accountability Office (GAO), in its report issued Monday, also notes that use of the forbearance provision of the Coronavirus Aid, Relief, and Economic Security (CARES) Act – available for about 75% of all mortgages – peaked in May 2020 at about 7% of all single-family mortgages (about 3.4 million) and gradually declined to about 5% by February 2021.

Additional report highlights 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.
  • A small percentage of borrowers – 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.

The GAO report was conducted in accordance with a CARES Act provision for GAO to monitor federal efforts related to COVID-19. The report looks at (1) the extent to which mortgage forbearance may have contributed to housing stability during the pandemic, (2) federal efforts to promote awareness of forbearance among delinquent borrowers, and (3) federal efforts to limit mortgage default and foreclosure risks after federal mortgage forbearance and foreclosure protections expire.

The report notes that the reasons that some borrowers did not use forbearance may include a misunderstanding about 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 raft 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 notes that borrowers in extended forbearances generally have large expected repayments – an average of $8,300 as of February 2021, according to the National Mortgage Database. Citing information from the Mortgage Bankers Association, it said delinquent borrowers exiting forbearance have most commonly deferred repayment.

The current foreclosure moratorium ends July 31. Meanwhile, the GAO report notes some factors that offset the prospect of a spike in defaults and foreclosures. Among these are the Consumer Financial Protection Bureau’s (CFPB) revised mortgage servicing rules to help limit avoidable foreclosures until Jan. 1, 2022; and the fact that 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.

For its report, the GAO analyzed data on mortgage performance and the characteristics of borrowers who used forbearance from January 2020 to February 2021 using the National Mortgage Database (a federally managed, generalizable sample of single-family mortgages). GAO also reviewed data from Black Knight and the Mortgage Bankers Association on foreclosures and forbearance repayment. In addition, GAO interviewed representatives of federal entities about efforts to communicate with borrowers and limit default and foreclosure risks. To highlight potential risks, GAO also analyzed current trends in home equity among delinquent borrowers relative to the 2007–2009 financial crisis.

“COVID-19 Housing Protections: Mortgage Forbearance and Other Federal Efforts Have Reduced Default and Foreclosure Risks” (GAO-21-554)

Be the first to comment

Leave a Reply

Your email address will not be published.