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COVID-19

With unemployment rising, millions could fall behind on their mortgages

Amy Scott Apr 3, 2020
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Justin Sullivan/Getty Images
COVID-19

With unemployment rising, millions could fall behind on their mortgages

Amy Scott Apr 3, 2020
Justin Sullivan/Getty Images
HTML EMBED:
COPY

As a mortgage broker in Portland, Oregon, Steph Noble usually gets calls from people trying to get a new loan or refinance an existing one. These days, she’s hearing from a lot of former clients looking for help figuring out how to delay their mortgage payments due to a job loss or reduced income.

“It’s two things: People who need immediate help, and then people who want to plan,” she said. “They have enough to carry them through a period of time, but they’re just not sure how long this can go on for them.”

What kind of help those borrowers can get depends on what kind of loan they have. Under the recently passed Coronavirus Aid, Relief, and Economic Security Act, homeowners with federally backed mortgages, such as those guaranteed by Fannie Mae and Freddie Mac, the Federal Housing Administration or Department of Veterans Affairs, can pause or reduce their payments for up to a year. But Noble said some servicers are requiring a balloon payment at the end of that period.

“If you don’t have $1,500 for three months, what’s the likelihood you’re going to have, magically, $4,500 at the end of three months?” she said.

How many borrowers will need help isn’t clear. Researchers at Black Knight Inc. looked at the correlation between unemployment and missed payments during the Great Recession. If unemployment hits 10%, director of market research Andy Walden said, “we could be looking at roughly 2 million homeowners becoming past due on their mortgage in coming weeks.” At 30% unemployment, that projection rises to 10 million borrowers.

The good news, he said, is that homeowners have record levels of equity in their homes. The financial system is also in much better shape than before the last recession.

“Fortunately, the banking system did a really good job post-crisis to raise their capital levels,” said Mark Zandi, chief economist at Moody’s Analytics. “That’s the cash cushion they have to absorb losses that they’ll suffer on delinquencies and defaults.”

But Guy Cecala, publisher of Inside Mortgage Finance, said nonbanks, like Quicken and Loan Depot, now have a much bigger share of the mortgage market, accounting for more than half of originations and about a third of mortgage servicing. Mortgage servicers collect payments from borrowers and pass the money on to investors in mortgage-backed securities.

“The nonbanks, needless to say, don’t have the same financial wherewithal that a bank does,” Cecala said. “So they’re certainly more challenged if they have to advance payments to investors on mortgage securities, particularly if it goes more than a month or two, which seems very likely at this point.”

The Consumer Financial Protection Bureau has a guide to mortgage relief options here.

COVID-19 Economy FAQs

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Chief executives of America’s COVID-19 vaccine makers promised in congressional testimony to deliver the doses promised to the U.S. government by summer. The projections of confidence come after months of supply chain challenges and companies falling short of year-end projections for 2020. What changed? In part, drugmakers that normally compete are now actually helping one another. This has helped solve several supply chain issues, but not all of them.

How has the pandemic changed scientific research?

Over the past year, while some scientists turned their attention to COVID-19 and creating vaccines to fight it, most others had to pause their research — and re-imagine how to do it. Social distancing, limited lab capacity — “It’s less fun, I have to say. Like, for me the big part of the science is discussing the science with other people, getting excited about projects,” said Isabella Rauch, an immunologist at Oregon Health & Science University in Portland. Funding is also a big question for many.

What happened to all of the hazard pay essential workers were getting at the beginning of the pandemic?

Almost a year ago, when the pandemic began, essential workers were hailed as heroes. Back then, many companies gave hazard pay, an extra $2 or so per hour, for coming in to work. That quietly went away for most of them last summer. Without federal action, it’s mostly been up to local governments to create programs and mandates. They’ve helped compensate front-line workers, but they haven’t been perfect. “The solutions are small. They’re piecemeal,” said Molly Kinder at the Brookings Institution’s Metropolitan Policy Program. “You’re seeing these innovative pop-ups because we have failed overall to do something systematically.”

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