The Joe Biden administration on Thursday announced that a moratorium on foreclosures and evictions, set to expire at the end of this month, will be extended another 30 days and will now take place on July 31, 2021. This is according to a series of announcements issued by federal agencies including the U.S. Department of Housing and Urban Development (HUD), the Department of Veterans Affairs (VA), the U.S. Department of Agriculture (USDA) and the Consumer Financial Protection Bureau (CFPB) in concert with the White House.

While much of the new effort at combating homelessness through the extension of these moratoriums is focused on renters, homeowners are also designed to benefit from these actions if they have mortgages that are backed by the relevant federal agencies, according to the White House. [MORE]

According to Brookings, Many low-income borrowers could remain in distress when the federal forbearance program actually expires. This development has serious implications for the roughly 2.1 million borrowers still under the protective ambit of COVID forbearance programs. On the surface, steady increases in forbearance exits suggest that borrowers’ financial circumstances have improved. These national trends, however, mask significant financial weaknesses plaguing financially stressed households, and financial stress tends to be geographically and demographically concentrated among communities of color. The looming forbearance cliff threatens to expose millions of unemployed and underemployed homeowners to foreclosure, bankruptcy, or pressure to sell prematurely. These escape routes will undoubtedly exacerbate the racial wealth gap; each option represents a retreat from homeownership that communities of color are ill-prepared to absorb. Homeownership is integral to generational wealth creation, home equity is the largest component of asset-driven wealth for Black and Hispanic accounting for nearly 40% of their balance sheet on average

Policies aimed at stabilizing distressed communities should be informed by the well-being of COVID-impacted homeowners, not artificial deadlines. We partnered with SaverLife, a fintech non-profit, to explore the financial well-being of low- and moderate-income homeowners. Like Tenesha, who lives in Washington with two daughters. She has never missed a mortgage payment but worries about losing her home when her unemployment benefits end. This blog highlights the financial constraints and foreclosure fears among distressed borrowers and offers pointed recommendations to preserve their homes. 

Upended households struggle to regain their footing

Homeowners hit hard by the pandemic are falling behind, with many struggling to find quality jobs that pay a living wage. Fifty-seven percent of respondents said their post-pandemic income declined. Of those who reported being employed, about 4 in 10 (39%) earned less income because they worked fewer hours. Another 18% reported working more hours but not earning enough to replace their pre-pandemic income. Notably, men were far more likely (23%) than women (11%) to report working more hours; this result is consistent with widespread reports on structural hurdles, such as disproportionate parental and elder care responsibilities, that continue to delay women’s return to the job market.

Tenesha lost her job as a server in March 2020 because her restaurant closed permanently. She’s still searching for work. The enormous financial burden facing this demographic is severe and possibly deeper than the barriers facing 37.5% of US adults, who, according to the Census Bureau’s Household Pulse Survey, experienced income declines.

The over-representation of minorities and women in SaverLife’s sample provides an important snapshot of the pronounced adversity facing homeowners of color. This real-time pulse check suggests that premature withdrawal of critical federal and state subsidies would exacerbate the hardships faced by communities of color and undermine recovery for other economically disadvantaged groups, including women and younger Americans. 

Many homeowners were unaware of and missed the forbearance window

The CARES Act circumvented an epic housing instability crisis for both renters and homeowners. Since last spring, more than 6 million borrowers have sought payment relief through forbearance. Although forbearance provided millions of distressed borrowers with vital breathing room, a substantial share of COVID-impacted homeowners missed the chance to participate in a forbearance program.

Participation in forbearance plans was remarkably low—just 8% of respondents reported having received a forbearance plan. This rate is unexpectedly low given respondents’ reportedly high rate of income disruption and the trend of working longer hours to keep up. Michelle, a Wisconsin resident, heard that forbearance could have negative consequences down the road, and opted not to apply even though she struggles to pay her mortgage. Unlike Michelle, borrowers who opted into forbearance plans did so out of necessity; the majority of those who froze their mortgages (55%) experienced some form of income disruption. This finding is consistent with studies from JP Morgan and others showing that most borrowers did not engage in opportunistic moral hazard behaviors such as opting into forbearance plans even though there was no change in their financial circumstances.

Early on, Fannie Mae raised concerns that familiarity with forbearance relief was alarmingly low among homeowners with incomes below $50,000: 56% were unaware of payment deferrals. A confluence of factors, including widespread misinformation about eligibility, fees, credit score penalties, and lump sum repayment obligations, could explain this frustrating pattern. Unfortunately, these racial disparities transcend the survey sample: a corroborating study by the Federal Reserve Bank of Philadelphia foundthat non-whites and Hispanics were more likely than whites to cite these concerns as reasons for forgoing forbearance protections. Together, the evidence suggests that critical information asymmetries suppressed participation rates in many corners of hard-hit communities of color. [MORE]