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How Many Homeowners Are Behind on Their Mortgage? (2022 Update)

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With the onset of the pandemic, 2020 became a difficult year for many families. Life seemingly came to a halt with lockdowns and self-quarantine measures. As a result, many families couldn’t work and keep up with their bills, including mortgage payments.

As of the first quarter of 2021, 11 million families were behind on their mortgage payments in the US. The Consumer Financial Protection Bureau (CFPB) issued a report stating the chances of widespread evictions and foreclosures.

Here, we delve deeper into this crucial issue and see how families cope with this harsh reality. We also learn more about homeowners in forbearance and what it means for families across the US.

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What is Mortgage Forbearance?

Many families are grappling with late mortgage payments across the US. The pandemic and onset unemployment are some of the late payment causes. With such vast numbers of delays, it’s prompted lenders to find ways to solve this issue.

In comes the mortgage forbearance agreement. It’s a deal that homeowners and lenders enter into to avoid foreclosing on the property with late payments. Basically, the lender agrees not to foreclose on the homeowner’s house or property. In return, the homeowner agrees to a mortgage plan to see them get up to date with the payments. The homeowner in forbearance will do so over a set period in the agreement.

Mortgage forbearance began in the US on March 18, 2020. Many homeowners required a sense of relief from the pandemic’s financial burdens. With millions of people facing difficulties financially, this was one way to offer them relief and avoid foreclosing on their homes.

However, a homeowner in forbearance must follow the set rules of the agreement. Once the period is over, they resume making normal mortgage payments as they did before. Terms and conditions of the mortgage forbearance vary from one lender to the next.

In addition, this isn’t a long-term solution. It only offers the temporary homeowner relief as they work on how to resume regular payments. An extension might be possible, but it also depends on the financial institution.

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Is Mortgage Forbearance Good for You? Pros and Cons

While homeowner in forbearance is a good solution, it’s temporary and requires a bit more insight before applying. This is an agreement between you and the lender, so it’s best to learn the pros and cons of such a deal.

Pros of Mortgage Forbearance

  • Evade Foreclosure. Every homeowner knows when they default on mortgage payments, they face foreclosure. However, it’s tough to keep up with the payments when times are hard. This is where forbearance comes into effect to offer temporary relief. As you and the lending institution agree, you can pause payments over a certain period to help catch up with the late ones. It’s much better than facing a foreclosure which can impact your life in many ways.

Foreclosures can cause much grief for you and your family. It means you lose your home and all that you’ve strived to accomplish. In addition, this can harm your credit score. Having bad credit limits many aspects of your life, including getting another loan in the future.

  • Temporary Relief. As mentioned above, a homeowner in forbearance has temporary relief financially. The lender can pause your payments for the agreed period. During this time, you find ways to dig yourself out of the financial hole. For many families, this period means they can re-evaluate their budgets and see where to cut on expenditure. Once the period lapses, you resume the payments.
  • Stay in the House. Once a home is in foreclosure, you must vacate it immediately. However, when a homeowner is in forbearance, they can continue to live in their home. This is quite crucial because you don’t have to worry about finding a place to stay as you work on getting back on your feet financially.
  • Show of Good Faith. Lenders prefer homeowners willing to work with them to find a solution than completely default on payments. The show of good faith can help you create lender goodwill. It can also be the measurement the lender uses to possibly extend the forbearance.

Cons of Mortgage Forbearance

  • Payments Are Still Required. Mortgage forbearance is a bandage and not an ultimate solution for your financial woes. The bank still requires you to pay back the full amount you owe them, plus all the missed ones. In the agreement, you can choose how to do this either in small amounts or a lump sum.
  • Impact Credit Score. Lenders are under obligation to report forbearance to the credit bureau. Doing so can negatively affect your credit score. This will, in turn, lower your credit rating and cause you to have a hard time with borrowers in the future.

 

So, before applying for mortgage forbearance, have a talk with your lender on this matter. Get to learn how this agreement will impact your credit score before signing on the dotted line. Having a record of mortgage forbearance in your record can make other lenders consider you a high-risk client.

  • Might Not Be the Best Solution. Does your mortgage payment take up a huge percentage of what you earn each month? In such cases, a homeowner in forbearance won’t find this as an effective solution to their financial burdens. Time lapses, and they still can’t meet the payments, including the missed ones.

 

In such instances, it’s better to find alternative solutions. Homeowners must consider if there are other ways to solve this issue if mortgage forbearance isn’t for them.

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Alternatives to Mortgage Forbearance

Mortgage forbearance only lasts for a short period and isn’t a long-term solution for many homeowners. If you find yourself in a situation where you know this isn’t the best solution, perhaps you can look into an alternative.

Below are some ways you can catch up with mortgage payments and avoid forbearance.

1. Borrow from the Retirement Account

Having a retirement account is important because you get to protect yourself financially in the future. But that doesn’t mean you can only access the money in your old age. When times get hard, you can dip into that 401(k). It’s possible to borrow up to 50% of your assets or $50,000, but terms and conditions apply.

2. Friends and Family

As independent as people are today, in times of crisis, it’s okay to ask for help. Sit down with friends and family and explain your situation. It’s best to borrow some money from them rather than face foreclosure or the tough terms a homeowner in forbearance faces.

3. No-Closing-Cost Refinancing

Refinancing your mortgage is another alternative solution to cover the mortgage payment. However, the terms of this solution are crucial to note. Most homeowners don’t get the full picture when it comes to closing costs while refinancing their mortgage.

Basically, getting a no-closing-costing means you don’t have to pay any closing fees upfront. The upfront costs are directed to your principal amount and not canceled out by the lender. When closing the old mortgage, the amount you should have paid moves to the principal amount, which is a relief for you financially for the moment.

How Does One Apply for Mortgage Forbearance?

Once you view mortgage forbearance pros and cons and the alternatives, and you still want to push forward, the next step is application.

The first step for a homeowner to get mortgage forbearance is to speak to your lender. The financial institution will have details on what you need to qualify for the payment pause. Many lenders are offering this as a solution for borrowers affected by the COVID-19 pandemic.

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Once you opt for the agreement, your lender will request you to provide them with some information and documentation, including the following:

  • Monthly income, like proof of a pay slip, for the last few months.
  • Documents proving you’re facing hard times financially, e.g., work termination papers
  • The monthly expenses you incur as a household
  • Details on the plan you have to get back on your feet financially
  • Unemployment benefits you currently take home
  • An overview of your current financial crisis and what led to this situation

Once the loan enters forbearance, you can start working on how to get back on your feet financially. Remember, this is only a pause in the payments. Once the time elapses, the bank expects you to continue paying and cover all the missed payments as per the agreement.

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Final Takeaway

As millions of homeowners in the US face financial crisis due to the COVID 19 pandemic, many have had little option but to default on their mortgage payments.

However, in March 2020, the government came up with mortgage forbearance to offer families temporary relief. So far, 7.6 million homeowners have been in forbearance since then. This meant they could pause payments for a certain period as they worked on picking themselves up financially.

Homeowners in forbearance can lower the risk of foreclosure and continue living in the house. But this is only a temporary solution. People in forbearance still have to pay back the full amount, including the late or missed payments to the bank.


Featured Image Credit: Puttachat Kumkrong, Shutterstock

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