Federal Loan Forbearance Doesn't Relieve Financial Strain for All
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What federal forbearance programs were created at the start of the pandemic?
Here's your Money Briefing for Wednesday, December 16th. I'm J.R. Whalen for The Wall Street Journal. The Federal CARES Act allowed consumers whose personal finances were hit by the pandemic to defer payments on their mortgages and student loans with virtually no negative effect on their credit score. But people with credit card or auto loans haven't had such broad protection.
So we are now seeing what essentially happens when people's deferment periods come to an end and they are unable to get back on track with paying their bills.
Coming up, our reporter Anna Maria Andriotis will discuss the disparity in relief benefits and how some banks are working with credit card holders who are still struggling. That's after the break.
For many mortgage and student loan borrowers, the federal forbearance programs put into place at the start of the pandemic have relieved a lot of financial strain. That hasn't been the case for a lot of people with other types of debt, like credit card, auto, or personal loans.
Why did the CARES Act protect mortgage and student-loan borrowers but not credit-card or auto-loan holders?
Anna Maria Andriotis covers the credit card industry for The Wall Street Journal. She's been studying this issue, and she joins us now. Anna Maria, thanks for being here.
Great to be with you.
So Congress wrote very specific rules requiring mortgage companies and student loan lenders to report borrowers as current, even while they're in forbearance. Why were things different for people who struggled with things like credit cards, auto loans, and personal loans?
So there's less uniformity to the type of assistance that has been offered to people who have credit card, auto, or personal loan debt since the pandemic began. And that's because these debts were not addressed in the CARES Act that was signed into law in March to address the issues pertaining to the pandemic. So really what ended up happening here was that it was up to each lender to decide whether they were going to offer deferment, how much deferment they would offer, how their deferment programs would work, and whether they would be offered for, say, a month to struggling borrowers, if they'd be offered for three months, or even more. So basically there was a variety, there have been a variety of programs out there that are just different from lender to lender.
And in some cases, the lenders have also been able to offer deferments in different ways to their existing borrowers. So because one credit card issuers customer got one type of deferment arrangement, didn't necessarily mean that another customer with that company would get the same exact type of treatment.
How did lender-by-lender policies create uneven deferment options for consumers?
Well, let's dig into that question of uneven treatment. Why so much help from mortgage and student debt, but not other kinds?
The different treatment really comes down to the fact that, so if you have a mortgage, chances are you're fairly well off. You've reached a point in your life where you're more financially stable. And it also turns out that the CARES Act addressed deferment programs pretty extensively for mortgages, specifically those that are backed in some way by the federal government, of which many mortgages currently are. So, there's two sorts of divides going on right now with the deferment programs that are out there. One is that the type of loans and the deferment programs being offered on them are in large part based on whether the government was involved in making those decisions or not. The government was involved essentially in saying that a certain amount of deferment would need to be offered for federally backed mortgages and also for laying out the amount of deferment that people with federal student loans could get.
But if you are in the private market where your loan isn't backed by the federal government, really has something to do with the federal government, that's not as clean cut. And deferments for the most part have been available for a shorter period of time than the government mandated ones. In many cases, credit card issuers, for example, there are some that have already brought their deferment programs, new enrollment in those programs to an end.
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Chapters
5 chapters
1
What federal forbearance programs were created at the start of the pandemic?
0:05–1:06
2
Why did the CARES Act protect mortgage and student-loan borrowers but not credit-card or auto-loan holders?
1:06–2:39
3
How did lender-by-lender policies create uneven deferment options for consumers?
2:39–4:46
4
How did government backing influence the length and terms of deferment programs?
4:46–7:26
5
What evidence shows homeowners received more relief than renters or lower-wealth borrowers?
7:26–9:38
Speakers
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