Mortgage delinquency spiked at its fastest ever rate in the second quarter of 2020, as coronavirus and the economic fallout saw rising numbers of American homeowners fall behind with their mortgage payments. According to the latest Mortgage Bankers Association (MBA) data, the delinquency rate for mortgage loans on one-to-four-unit residential properties soared to a seasonally adjusted rate of 8.22% of all loans outstanding by the end of the second quarter, more than double the rate seen in first three months of 2020 and in the same period a year earlier.
"The COVID-19 pandemic's effects on some homeowners' ability to make their mortgage payments could not be more apparent. The nearly 4 percentage point jump in the delinquency rate was the biggest quarterly rise in the history of MBA's survey," said Marina Walsh, MBA's Vice President of Industry Analysis. "The second quarter results also mark the highest overall delinquency rate in nine years, and a survey-high delinquency rate for FHA loans."
In a sign that the challenges facing those struggling to pay their mortgage are nowhere near at an end, the survey also showed a movement of loans to later stages of delinquency, with the 60-day rate recording a new survey-high, and the 90+-day delinquency rate climbing to its highest level for almost a decade. A small positive in a sea of bad news was the drop in 30-day delinquencies, suggesting that the surge of new delinquencies may be easing.
The states hit the hardest
With mortgage delinquencies tending to track closely with the availability of jobs, the MBA noted that the largest quarterly increases in delinquency rates were seen in New Jersey, Nevada, New York, Florida, and Hawaii - all states with a prevalence of leisure and hospitality jobs that were especially hard-hit by the pandemic.
While acknowledging an improvement in the job market over the past three months, with the unemployment rate falling from an April peak of 14.7% to 10.2% in July, Walsh warned this was tempered by “numerous uncertainties, including the ambiguous status of enhanced unemployment benefits and other stimulus measures, the recent surge in new COVID-19 cases, and the retrenchment from reopening in certain states".
"And there is no way to sugarcoat a 32.9% drop in GDP during the second quarter,” she added. “Certain homeowners, particularly those with FHA loans, will continue to be impacted by this crisis, and delinquencies are likely to stay at elevated levels for the foreseeable future."
What can struggling mortgage borrowers do?
Unemployment and temporary lay-offs have impacted the income of millions of Americans in the past few months, leaving many worried over making ends meet. If you’re confident your situation is temporary and you simply need some funds to bridge a financial gap until you return to work, the best personal loans or a credit card might be able to help. Payday loans are best avoided if at all possible for the cycle of debt they can quickly create. Should you be in the fortunate position of having equity in your home, it might even be possible to switch to a better mortgage deal using the best refinance mortgage companies and lower your monthly payments in the process or realize some funds to help you through.
Talk to your mortgage lender
However, if your overriding concern is about your ability to meet your monthly mortgage payments, the first step to take is to talk to your mortgage company. Since COVID-19, the best mortgage lenders have been far more flexible in their approach towards those who are struggling to meet their obligations, so speak to them and see how they can help.
Most likely, your lender will offer you forbearance, or a temporary pause of your payment. Remember, however, that the payments are not forgiven, and you’ll still need to make them up when you can. Some questions you should ask of your lender include the options available for making good on the missed payments, or perhaps the choice of a loan term extension to give you more time to pay. Also check how forbearance might affect your ability to refinance your mortgage in the future. If you have an FHA loan, the Federal Housing Association has in-depth guidance as to what you can expect from your mortgage servicer.
If, at the end of the forbearance period, you remain unable to make your payments, you may be eligible for a loan modification - this is where changes are made to your loan to try to lower your monthly payment and take care of past-due amounts. Typically, this is achieved by the lowering of your interest rate or extension of your loan term, but is usually seen as a last resort to avoid foreclosure.
If you have reached this stage, it is likely you will already have significant debt to your name that you are also struggling to clear. In this case, consider approaching the best debt consolidation companies to see how they might be able to help you better manage your debt obligations. Hopefully, a solution to your financial problems will present itself before then, but always remember you can call on debt counseling services with any of your money concerns too.