Struggling Homeowners Remain in Mortgage Forbearance
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Here's your Money Briefing for Monday, January 25th. I'm J.R. Whalen for The Wall Street Journal. The Federal CARES Act passed last March gave cash-strapped homeowners the opportunity to postpone payments on their federally-backed mortgages for up to a year. Many borrowers were able to resume payments after a few months, but millions who signed up for forbearance last spring are still postponing payments.
More homeowners are staying in forbearance. They're asking for extensions and fewer are transitioning out of forbearance. Fewer are resuming payments. So ultimately, more people are technically behind on their mortgages.
So what options do homeowners have when the forbearance period runs out? Our reporter Orla McCaffrey will have some answers after the break.
How many homeowners entered CARES Act mortgage forbearance and when did it peak?
When the coronavirus shattered the economy last spring, mortgage borrowers were given a reprieve, up to 12 months of forbearance to help them cover other areas of their personal finances. But we're coming up on nearly a year later, and many are still struggling to recover. Our reporter Orla McCaffrey has been following this issue, and she joins us now to discuss. Orla, thanks for being with us.
Thanks for having me.
So since the forbearance program was launched in March, about how many people signed up? It doesn't seem to have helped all homeowners get back on track.
Why are millions of borrowers still postponing mortgage payments months later?
Yeah, so at the peak, almost 5 million homeowners were signed up back in June, and the share has been declining pretty steadily since then. And yeah, for a lot of people, it has helped them get back on track. Some people kept making payments and just used forbearance as kind of a safety net in case they lost their income. And largely it has worked out for people who have been in the program so far. They've been able to transition out and either make up the missed payments, spread them out over the term of their loan or add them onto the back of their loan. But there's still a group of people in forbearance who have either signed up recently or most of the group is in fact people who signed up last spring and whose financial situations haven't really improved since then.
Yeah, you know, we saw some signs of economic improvement over the summer. Things have deteriorated since then. Job losses are up, COVID-19 cases are rising, and people are pulling back on spending. How are we seeing that show up in the forbearance numbers?
So the change in forbearance numbers has actually tracked the increase in coronavirus cases pretty well. When we saw that surge in November that really started our current wave, that's also when we saw the share of homeowners in forbearance, that rate start to kind of stall. not really move. And that means that more homeowners are staying in forbearance. They're asking for extensions and fewer are transitioning out of forbearance. Fewer are resuming payments. So ultimately, more people are technically behind on their mortgages.
And just to be clear, we're talking about forbearance and not mortgage forgiveness?
There is a big difference between forbearance and forgiveness. Forgiveness is the case where you wouldn't have to make up any payments, which is not really a thing in the industry. The standard is forbearance, where you are able to delay or postpone payments for a number of months, and then you have a couple of options at the end of the forbearance terms on how to make those payments up. But you definitely will have to make them up.
You know, a lot of people exited the program and resumed making mortgage payments, like you said. And then within their 12-month window, if they fall on hard times again, can they reenter the program or what are their options?
Homeowners can use 12 months of forbearance as guaranteed by the CARES Act that was signed last March. The current deadline to sign up to request that is the end of February or the end of March, depending on the type of loan you have. Currently, the Biden team has proposed a extending that deadline until the end of March for all loans, all federally backed loans. And the stimulus plan his team released includes a six-month extension until the end of September, during which homeowners can apply for forbearance.
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