More Than 8% of U.S. Mortgages Now in Forbearance
With the United States economy still being pummeled by closures associated with the spread of COVID-19, many Americans are seeking financial relief. One potential option for homeowners who may be struggling is forbearance, which allows them to pause mortgage payments for up to 12 months. Now new data shows that a growing number of consumers are applying for this protection — regardless of whether or not they might need it.
As Marketwatch reports, as of May 10th, 8.16% of all mortgages were in forbearance according to the Mortgage Bankers Association (MBA). That’s not only up from 7.91% the week prior but also amounts to more than four million people. However new requests for forbearance have slowed, with MBA chief economist Mike Fratantoni noting, “There has been a pronounced flattening in loans put into forbearance — despite April’s uniformly negative economic data, remarkably high unemployment, and it now being past May payment due dates.”
Although the popularity of mortgage forbearance has increased drastically in recent months, a new survey suggests that the majority of homeowners requesting this protection may not actually need it. According to data from LendingTree, nearly 70% of surveyed homeowners currently in forbearance reported that the move wasn’t financially necessary. In fact a mere 5% said that they wouldn’t have been able to make their mortgage payments otherwise — however 26.2% said that they would have needed to skip other essential bills in order to make their mortgage payments if not for forbearance. Instead many homeowners stated that they “wanted a break from their normal payments.” As a result, 72% of respondents said they felt at least a little guilty about applying for forbearance, including 33.2% who reported feeling a lot of guilt about it.
While forbearance may sound like a no-brainer, some experts warn that their are downsides. For example, Forbes points out that those in forbearance may not be able to refinance their mortgages. That’s notable because mortgage rates have been falling — currently sitting at 3.28% (down from 4.07% a year ago) according to Freddie Mac. This led Money Management International director of business development Kate Bulger to tell Forbes, “The forbearance really is an emergency break. You don’t want to use it unless you really need it, and if you need it you should absolutely use it. If you need the forbearance to avoid missing mortgage payments and running the risk of foreclosure, then definitely use it.”
Ultimately, regardless of whether or not all of the homeowners who applied for forbearance have actually needed it, there are plenty who have required relief due to unemployment or other financial factors. Therefore it’s important not to throw the baby out with the bathwater. Instead we can all look forward to economic recovery that will reverse this trend and get Americans back on their feet.