Nearly 11 million households fell behind on their mortgage or rent payments during the first three months of the COVID-19 pandemic, according to a new study by the Mortgage Bankers Association’s Research Institute for Housing America (RIHA). Meanwhile, 30 million people missed at least one student loan payment.

The report contains data from an internet panel survey specially tailored to study the impact of the pandemic on rent, mortgage and student loan payment patterns. It found that the sudden onset of the pandemic led to abrupt job losses and reductions in hours worked. “However, federal government stimulus programs and employees being called back to work both appear to have helped most individuals make their housing payments,” the MBA said.

Still, the report found that 5.14 million homeowners (8%) missed or deferred at least one mortgage payment, while
5.88 million renters (11%) reported a missed, delayed or reduced payment.

“RIHA’s study shows that households were largely successful in navigating a difficult economic landscape and continued to make their housing payments during the first three months of the outbreak,” said Gary V. Engelhardt, professor of economics at Syracuse University’s Maxwell School of Citizenship and Public Affairs. “In contrast, nearly half of student debt borrowers missed at least one payment. Data from other sources reveal that this trend has continued through August. With the first round of federal stimulus having run its course, and Congress deadlocked in passing another round of relief, families’ continued ability to meet their housing obligations during the ongoing pandemic is critical to the health of the housing and mortgage industries.”

Engelhardt warned that there were still hurdles ahead as the pandemic continues.

​“The stubbornly high rates of new COVID-19 cases and the labor market’s sluggish recovery both present significant challenges for household finances as the country enters the fall,” he said.

Reduced supply of offerings across all loan types led the overall decline in mortgage credit availability in August down to a six-year low.

The Mortgage Bankers Association's index was down 4.7% to a reading of 120.9, indicating a tightening in lending standards.

The drop was driven by a "reduction in supply from both conventional and government segments of the market," according to Joel Kan, associate vice president of economic and industry forecasting at MBA.

"Credit continues to tighten because of uncertainty still looming around the health of the job market, even as other data on loan applications and home sales show a sharp rebound," he said. "A further reduction in loan programs with low credit scores, high LTVs, and reduced documentation requirements also continued to drive the overall decline in credit availability."

The conventional component of the Mortgage Credit Availability Index (MCAI) fell 8.7% in August, while the government MCAI dipped by 1.4%. Additionally, both conforming and jumbo sub-indexes of the conventional MCAI edged down by 8.6% and 8.9%, respectively. The conforming index was the lowest reading since MBA's series began in 2011.

​"Jumbo credit availability has fallen around 59% since the pre-pandemic months, and data from MBA's Weekly Applications Survey showed that jumbo mortgage rates stayed over 30 basis points higher than conforming rates in August, which is another indication of the reduced investor appetite for those loans," Kan said.

​Minority homeowners can face significant barriers to realizing the full benefits of homeownership – especially when it comes to building intergenerational wealth, according to a recent report by the Urban Institute.

According to the report, since homeownership became viable for Black families, “the benefits have been uneven and have not accrued equitably.” Black households with housing equity have about half the equity of white households on average, while Hispanic households have about 63% of the equity of white households on average.

“These differences in housing equity reflect differences in underlying home values and the total amount of mortgage debt,” the study said. “All else equal, lower home values for homeowners of color relative to the values of homes owned by white homeowners contribute to lower housing equity for Black and Hispanic homeowners.”

Miki Adams, executive vice president at CBC Mortgage Agency – a nationally chartered housing finance agency – said more needs to be done to address that disparity.

“I would attribute (the disparity) to historical government policy – the legacy of redlining, which has held values back in areas where minorities tended to concentrate.,” she told MPA. “I think that we have a way to go. The challenge is starting to make homeownership for minorities more equitable and more on par with the white population. There’s a lot that needs to happen, and a lot of that needs to come from government policy.”

In order to address the disparity, the Urban Institute made four policy recommendations: reform zoning laws that enforce racial segregation, expand down-payment assistance (DPA) programs, strengthen pre- and post-purchase counseling, and develop financial products for home maintenance and repair.

Two of those recommendations – expanding DPA and strengthening pre- and post-purchase counseling – are especially important, Adams said.

“When we talk about down-payment assistance and strengthening pre-purchase and post-purchase counseling, those are huge,” she said. “The biggest challenge for minority homeownership is coming up with the down payment and understanding what goes into owning a home. … Quality counseling early on in the mortgage process is very important, and providing continued support after the mortgage closes is critical.”

While pre-purchase counseling is a requirement for many loans, post-purchase counseling is comparatively rare, Adams said.

“But when you marry pre-purchase and post-purchase counseling, you give the buyer a very strong support system,” she said.

CBC Mortgage Agency recently expanded its own post-purchase counseling program from one year to 18 months – and it’s already reaping benefits for borrowers, Adams said.

“Our rate of engagement is incredibly high, which tells us that borrowers like and want to be supported after the first year of homeownership,” she said. “Expanding out post-purchase counseling allows us to help borrowers through the difficult times. It’s coaching and mentoring so that borrowers can start to build intergenerational wealth for themselves and their families. The best way they can do that is by becoming successful homeowners.”

Robust DPA programs are also important in closing the gap in the benefits of homeownership, Adams said.

“In 2019, 54% of our down-payment assistance recipients were minorities, who if not for down-payment assistance would not have had the opportunity to become homeowners,” she said. “Many minority borrowers don’t have the same opportunity to get down-payment assistance from their families as white borrowers do.”

In fact, Adams said that 34.8% of CBC Mortgage Agency’s borrowers in 2019 were the first generation in their families to own a home. 

In addition to expanding its post-purchase counseling, CBC Mortgage Agency also recently expanded its own DPA program, Adams said.

“Before, our down-payment assistance was limited to 3½% of the purchase price,” she said. “We just expanded it up to 5%. This will allow borrowers to hang on to a little more of their savings as a cushion for emergencies that may come up after closing.”

CBC Mortgage Agency’s mission, Adams said, is to help borrowers become successful homeowners – which can benefit not only those borrowers, but succeeding generations.
​
“We are very focused on how we can increase the numbers of minority homeownership through education and counseling. We think that’s a very important step to bridge that gap,” she said. “The whole point of trying to change the paradigm here is to increase intergenerational wealth over time – and that requires successful homeownership.”

After a substantial decline last week, the number of borrowers in coronavirus-related mortgage bailout programs dropped by a lot less this week.

It’s a signal that homeowners still need a lot more help in order to recover from the ongoing economic ills of the pandemic. There are also indications that a new foreclosure crisis could be on the horizon.

As of this week, 3.7 million borrowers are still in government and private sector mortgage forbearance programs. That’s about 7% of all active mortgages, according to Black Knight, a mortgage technology and data firm. These plans allow borrowers to delay monthly payments for at least three months and, in some cases, up to a year.

More than 2 million forbearance plans are set to expire this month, and so far about 350,000 borrowers have started making their monthly payments again.

On the other hand, about three-quarters of those still in bailout plans, delaying their payments and sinking deeper into debt, are now in renewals. They have extended their plans by another three months. These borrowers are likely unemployed or receiving reduced income due to the pandemic.

About 48,000 borrowers started their first forbearance plans this month, which is the lowest level since the bailouts began. So while some of the numbers are improving, the   forecasts for foreclosures are deteriorating.

The number of seriously delinquent mortgages, those that are at least 90 days past due, more than doubled from May to June. The figure hit its highest level in more than five years, according to CoreLogic. Barring further government support, experts there predict serious delinquencies could double again by early 2022, which could seriously hurt home prices and home equity.

“Forbearance has been an important tool to help many homeowners through financial stress due to the pandemic,” said Frank Martell, president and CEO of CoreLogic. “While federal and state governments work toward additional economic support, we expect serious delinquencies will continue to rise — particularly among lower-income households, small business owners and employees within sectors like tourism that have been hard hit by the pandemic.”

During the last foreclosure crisis a decade ago, close to 10 million Americans lost their homes, either through foreclosure or bank-approved short sales. The housing market is still recovering from that. This time around, the numbers are likely to be much smaller, as the overall market is much healthier. Borrowers have significantly more equity in their homes, unlike a decade ago, when home prices plummeted and millions were left underwater on their home loans, owing more than the homes were worth.

The serious mortgage delinquency rate in June was triple what it was in March and is expected to move much higher, but not all of those borrowers are destined to lose their homes in foreclosure.

“While some would go into foreclosure proceedings, many would sell rather than lose all the home equity that they had gained through appreciation over the last several years,” said Frank Nothaft, chief economist at CoreLogic.
​
Foreclosure filings are currently still historically low, but they did jump 11% from July to August according to Attom Data Solutions, as various state and federal moratoria on foreclosures lifted.

Jim Millstein, the co-chairman of Guggenheim Securities, said financial markets are headed into a period of “significant volatility” with default rates expected to spike as we move closer to the end of the year.

“Fasten your seatbelts, it’s going to be a bumpy ride,” Millstein said Tuesday in a Bloomberg Television interview.

​Defaults will pick up as tumult in the financial markets persists, he said. “The continuing inability to get the pandemic under control in the United States,” the upcoming election and “a change in macroeconomic policy at the Fed” all contribute to the ongoing volatility.

Ratings companies are also forecasting more defaults. The rate fell in August, as expected, since the last month of the summer is typically slower for nonpayments. But S&P Global Ratings expects the the pace of defaults to increase “amid the continued impact of Covid-19 on economic and credit conditions,” Sudeep Kesh, head of S&P global credit markets research, wrote in a report last week.

Polarized politics

Millstein, who was the restructuring chief at the Treasury Department in the wake of the financial crisis, cited polarized politics as a reason for uncertainty in the equity and credit markets. “The election itself will serve as a significant source of volatility” as November approaches, he said.

The first stimulus bill from the government “put a floor under the economy and credit markets,” Millstein said. Heading into the election, “it isn’t surprising Washington” hasn’t been able to close in on the next steps to support jobs and growth.

Pressure is also mounting at the corporate level for landlords who rely on businesses to make a profit and pay their rent, according to Millstein. “Some businesses that are barely hanging on are not paying,” and landlords will have a “hard time” as a result.

Hardships will pile on, Millstein says, pointing to weakness across many sectors of the economy. The default rate on commercial mortgage-backed securities will approach high single digits by year-end, Fitch Ratings predicts.

Continuing high unemployment rates and virus-related shutdowns will lead to a “froth around commercial real estate markets,” Millstein said. Skipped payments will create a ripple effect across the sector, creating “a significant hit” on the economy.

The rate of serious mortgage delinquencies spiked in June to its highest level in more than five years, according to a new report by CoreLogic.

On a national level, 7.1% of mortgages were in some stage of delinquency in June, according to CoreLogic’s latest Loan Performance Insights report. That’s a 3.1-percentage-point increase over the delinquency rate of 4% in June 2019. While early-stage delinquencies (30 to 59 days past due were at 1.8%, down from 2.1% in June 2019, adverse delinquencies (60 to 89 days past due) and serious delinquencies (90 or more days past due, including loans in foreclosure) were both up year over year.

Adverse delinquencies represented 1.8% of all mortgages, up from 0.6% in June of last year. Serious delinquencies accounted for 3.4% of all mortgages, up from 1.3% in June 2019. This is the highest serious delinquency rate since February of 2015, according to CoreLogic.

“The housing market is facing a paradox,” CoreLogic said. “The CoreLogic Home Price Index shows home-purchase demand has continued to accelerate this summer as prospective buyers take advantage of record-low mortgage rates. However, mortgage loan performance has progressively weakened since the start of the pandemic.”

Sustained unemployment due to the economic impact of the pandemic has pushed many homeowners further into delinquency. With unemployment projected to remain high through the end of the year, there may be further impacts on delinquency and foreclosure, CoreLogic said. The analytics firm predicted that unless additional government support programs are enacted, serious delinquency rates could nearly double by early 2022. Not only could millions of families lose their homes, but this could also create downward pressure on home prices as distressed sales are pushed back into the market, the analytics firm said.

“Three months into the pandemic-induced recession, the 90-day delinquency rate has spiked to the highest rate in more than 21 years,” said Dr. Frank Nothaft, chief economist at CoreLogic. “Between May and June, the 90-day delinquency rate quadrupled, jumping from 0.5% to 2.3%, following a similar leap in the 60-day rate between April and May.”

​“Forbearance has been an important tool to help many homeowners through financial stress due to the pandemic,” said CoreLogic President and CEO Frank Martell. “While federal and state governments work toward additional economic support, we expect serious delinquencies will continue to rise – particularly among lower-income households, small business owners and employees within sectors like tourism that have been hit hard by the pandemic.”

Shortly after revealing its plans for a new nation-wide moratorium on evictions Tuesday, the Centres for Disease Control and Prevention found itself in the crosshairs of the country’s housing industry, tenants’ rights advocates, landlords, and even legal scholars.

The CDC order bans landlords from removing from their properties tenants who are unable to pay their rent because of COVID-19-related financial hardships until December 31, 2020. The CDC’s ban follows the Federal Housing Finance Agency’s own extended moratorium on evictions and is intended to help keep an estimated 40 million rental households in place at a time when the country’s economic future and ability to restrain the coronavirus pandemic are both in serious question.

The CDC order isn’t exactly comprehensive. It applies only to renters making $99,000 or less, and anyone seeking eviction relief is required to both pay as much rent as they can afford and provide a written declaration agreeing to the CDC’s terms. (In case the poor had forgotten about the Trump administration’s opinion of them, the declaration reminds renters that if they “lie, mislead, or omit important information” they can be fined up to $250,000 and sentenced to a year in jail, an ironic punishment considering the rate of COVID-19 infection taking place in America’s prisons.)

Additionally, individuals can still be evicted for reasons other than not paying rent or making housing payments, and nothing in the order prevents “the charging or collecting of fees, penalties, or interest as a result of the failure to pay rent or other housing payment on a timely basis, under the terms of any applicable contract,” according to the CDC, creating a scenario where millions of renters will be buried under mountains of debt. There is also no language in the order that requires landlords to apprise their tenants of the new moratorium.

“This is a band aid, not a solution,” wrote The Center of Budget and Policy Priorities’ Peggy Bailey in a September 1 tweet. “While the moratorium extension is a step in the right direction, it does little to adequately meet the needs of millions of families who are behind on their rent.”
In a tweet of her own, Diane Yentel, president and CEO of the National Low Income Housing Coalition, called the moratorium “a half-measure that extends a financial cliff for renters to fall off when the moratorium expires and back rent is owed.”

Dominoes falling

The potential loss of millions of rents until January 1 has America’s housing industry and landlords on edge as well.
In comments to NPR on Wednesday, Rich McGimsey, the owner of 315 apartments in Virginia, described the CDC order, and the pressure it puts on landlords, as a “burden”.

“What are we going to do? If nobody pays the rent, how are we going to pay our banks? How am I going to pay my employees?” McGimsey said before telling host Mary Louise Kelly that he has yet to miss any of his own payments or had to carry out an eviction during the pandemic.

McGimsey predicted that the CDC moratorium will have “all kinds” of unintended consequences.

“If apartment providers are going to look at a resident coming in and think, well, they may not pay, and if they don't, they're going to stay here till April 2021 [McGimsey made repeated mention of the possibility of eviction moratoriums lasting until then], then you're going to raise your criteria. It's going to be so much harder for people with blemished credit to go ahead and get an apartment,” he said.

In a statement, Mortgage Bankers Association CEO Bob Broeksmit described the destabilizing cascade effect a lack of rent payments could have on the country’s housing providers, “millions” of whom, he said, “will be unable to meet their mortgage obligations, make payroll to their own employees, maintain a safe and healthy living environment for their tenants, and pay their state and local government property taxes.”

NerdWallet’s Holden Lewis had a different take on the ban.

“It's a shrewd move,” he told Mortgage Professional America by email, “because the eviction moratorium will cause a crisis for landlords, and the crisis might motivate Congress to do something. Landlords now have ample reason to pressure Congress into providing financial relief.”

Questions over legality

The CDC ban is also being questioned by law experts, who feel it may be on the receiving end of legal challenges. The 1944 Public Health Service Act granted the CDC the power to take actions it feels are necessary to stop the spread of infectious diseases across state lines, but there is no mention of the CDC having authority over housing policy.

According to law professor and director of American University’s health law and policy program Lindsay Wiley, the Act focused on more general practices, such as sanitation and fumigation.

“I absolutely do expect to see legal challenges,” Wiley told The Hill. “The CDC has really broad authority on its face, but it's never pushed the boundaries of that authority.”

​

​With work-from-home becoming the new normal thanks to the COVID-19 pandemic, more residents in expensive coastal cities like San Francisco and New York are looking to move to cheaper inland areas – accelerating a trend that has been going on for at least five years.

According to proptech firm Redfin, 27.8% of its users looked to move to another metro area in July  – up from 27.4% in the second quarter and 25.2% in July 2019.

And their destinations of choice: Sacramento, Phoenix, and Las Vegas.

Veronica Clyatt, a Redfin agent in Pleasanton, a city just outside San Francisco, said that a lot of people moving away from the Bay Area have “had it in the pipeline for a while, and remote work is accelerating the process.”

“People who can work remotely are re-examining where they want to live, and for most of them that means they're looking at places that are less expensive,” said Clyatt. “I've had buyers drop out of their search in the Bay Area because they're moving to Sacramento or Texas, and I've had people moving over to Pleasanton because it's less expensive than San Francisco.”

Meanwhile, Marco Di Pasqualucci, a Redfin agent in Las Vegas, said that the city’s current market is experiencing a “feeding frenzy,” with low inventory and no shortage of interested buyers.

“We're seeing mass migration of people from other states moving into Nevada,” said Di Pasqualucci. “The lack of state income tax, warm climate and the relatively low cost of housing – you can buy a nice home for around $300,000 – make Las Vegas an attractive place for people looking to move away from expensive areas.”

​On the other end of the spectrum, the top five places with Redfin identified as having the biggest net outflow in July were New York, San Francisco, Los Angeles, Washington DC, and Chicago.

​Yesterday, ATTOM Data Solutions released its Vacant Property and Zombie Foreclosure Report for the third quarter of 2020, finding that just over 1.5 million U.S. residential properties, or 1.6 percent of all homes in the country, are currently sitting vacant.

That many empty homes at a time when supply levels are painfully low is problematic in its own right. But what happens when a vacant or abandoned property also faces the risk of foreclosure?

ATTOM discovered that of the almost 216,000 properties involved in foreclosure proceedings in the third quarter, 7,961, or three percent of them, are vacant. While that is a small portion of the country’s housing stock, the number of properties that have been abandoned and deemed ‘zombie foreclosures’ has risen three percent since the second quarter.

“Abandoned homes in foreclosure remain little more than a spot on the radar screen in most parts of the United States, posing few, if any, problems from neighborhood to neighborhood,” said ATTOM’s chief product officer, Todd Teta. But Teta conceded that the increase in zombie foreclosures “throw a small potential red flag into the air.”

The rise in abandoned properties signals a variety of potential causes, none of them good. First, it’s safe to assume the owners of these homes are suffering financial distress so acute that they are willing to walk away from their properties, and future borrowing opportunities, completely. Second, abandoning a property at a time when homeowners have been permitted the opportunity to delay their mortgage payments implies that they may not have been made aware of their forbearance options. Finally, and related to the first point, these homeowners may be so despondent and disheartened by their country or state’s inability to help them and their family through the COVID-19 crisis that they’ve allowed hopelessness or nihilism to determine what could be the most damaging financial decision of their lives.

But zombie foreclosures aren’t just an effect. By slowing the foreclosure process, they also cause practical problems of their own.

“The longer a foreclosure process takes, the more likely it is that the home will be abandoned, and vacant homes are even more of a safety hazard than usual during a global pandemic,” Rick Sharga, executive vice president of RealtyTrac, told Mortgage Professional America.

Sharga feels its imperative that abandoned properties are processed and sold as quickly as possible to avoid blight and provide housing supply at a time when the country desperately needs it.

“As Federal, State, and local governments and industry regulators consider extending their foreclosure moratoria, it would be prudent for them to consider simultaneously allowing for the accelerated processing of vacant and abandoned foreclosure properties,” he said.

​ATTOM found that zombie foreclosure rates rose from Q2 to Q3 in every state but Hawaii. (The district of Columbia also experienced a decline.) The states with the largest increases were Kansas, Missouri, Georgia, Kentucky and Nebraska. Each state saw its proportion of zombie foreclosures rise to at least 10 percent.

​The most affected metropolitan areas in Q3 were Peoria, Kansas City (MO), Omaha, and Cleveland. Those with the lowest zombie foreclosure rates include Austin, Philadelphia, Los Angeles, Charlotte, and San Francisco.