What the forbearance extension means for homeowners

Brena Nath: We’re excited to have Greg McBride on the podcast. He is the senior vice president, chief financial analyst for bankrate.com. Over there, he leads a team that is responsible for researching financial products, providing analysis and advice on personal finance to a vast consumer audience.

You’re probably familiar with him. We’ve had him on the podcast before. And this time, we’re excited to tap into more than a quarter century of his knowledge and experience in personal finance to talk more about his reaction to the Biden administration’s recent extension of the COVID-19 forbearance and foreclosure release programs for homeowners. So, first off, thanks so much for joining us, Greg.

Greg McBride: It’s great to be here, Brena. Thanks for having me.

Brena Nath: Jumping right into that first question, you know, this is not the first kind of extension that we’ve heard out of not just the Biden administration, but we also know the Trump administration also was putting out these extensions.

So, can you…since there’s been so many extensions, can you give, like, a quick recap, or…, as thorough as you think is important, of the extensions that have happened, along with this latest one?

Greg McBride: Yeah. I think that one of the reasons that we’ve seen so many of these different extensions is that not any one extension covers everybody. So, for example, the Centers for Disease Control, they’ve got an eviction moratorium that pertains to renters, and that keeps getting extended because the pandemic itself is, you know, still in our midst, you know, 11…almost 12 months into this.

And on the homeowners’ side, you’ve seen foreclosure and even forbearance extensions provided. The CARES Act came out almost 12 months ago, last March. And one of the provisions in there was the idea of forbearance for up to 12 months.

Well, the clock is ticking. We’re coming up on the end of that 12 months. And there are, you know, a large share of those that are in forbearance that are going to roll off over the next several months. And so, having some sort of extension in effect…well, I was hoping it was inevitable.

I mean, it does kind of bring it to reality, simply because people are not ready to resume making the mortgage payments that they have been pre-pandemic in this latest round of extensions, pushes that timeframe out to June 30, and also extends for those that are in forbearance an additional six months. So, for those that had enrolled, say, in the early stages of the pandemic last year, they could get up to 18 months forbearance if their financial struggles, because of the pandemic, persist that long.

Brena Nath: It’s strange to think that we’re hitting the year anniversaries of things that we used to do pre-COVID. You know? It was, like, a year ago that we had…I was thinking about this…maybe this week, about the Mortgage Banker Association’s servicing conference that they have every year. This year it’s a little bit different, as they’re kind of merging their conferences together.

But just knowing, to your point, that these have been in effect for a year…Looking at them, what has the impact of the extensions been over time? I know you’ve mentioned, even, like, they keep getting dragged out. So maybe, starting with when they first came out…okay, this was the thought of the impact that you thought that would come from these extensions to this latest one carrying everything out until June.

What do you think that means for consumers to extend it again? But maybe another side, we’ve had a lot of discussions over here about the servicing industry, how we’re kind of keeping a close eye. The government is keeping a close eye on them to see how they’re able to respond to the end of these forbearances.

Like, the forbearance…now this extension, what does that look like? So, I guess that would be the two-fold of the question of, like, how is the impact of this change over time, and what does that impact look like since it has been extended?

Greg McBride: Well, you’re right. I mean, the pandemic has, you know, I think, you know, certainly…if we go back to last March, I think the general consensus was that this was gonna be sort of a hitting the pause button, economically, for a few months, and then we’d kind of get back to normal.

Well, you know, here we are a year later, almost a year later, and we’re not back to normal. Right? So, that has certainly persisted a lot longer. And so, a lot of these relief measures in place particularly as it pertains to, you know, forbearance and foreclosure, those are still in effect, and those timetables keep being expanded.

And, you know, I think there’s been benefits that, you know, certainly that has helped millions of homeowners…You know, forbearance has helped them stay current on their mortgages, even if they, you know, haven’t been able to make their payments, they’re not being counted as late. And so, maintaining that credit rating is going to be very important for them to be able to rebuild their financial lives post pandemic when they get back to work or when their income returns to normal.

But, yes, it does not come without cost. So, whether I think there’s been, you know, a greater good in keeping people in their homes, keeping them in a situation where they are able to stay in their home, and then have a shot at resuming payments as normal post pandemic. It does…it places a burden on the servicing industry, for sure.

We saw last year, Fannie Mae and Freddie Mac, you know, their regulatory agency…Federal Housing Finance Agency instituted that 25 basis point adverse market refinance fee to compensate for that. So, yes, it’s not without cost.

And I think one of the other things that really gets overlooked time and time again even with these extensions are the impact on mom-and-pop landlords. You know, a lot of these eviction moratoriums that are in effect, you know, the flipside of that is there are mom and pop investors built their retirement around the fact that they may have two or three rental properties.

And so, rental assistance to kind of, you know, make the tenant make the landlord and, you know, bring the tenant current. That always seems to be a missing piece of the puzzle.

Brena Nath: I guess, the waterfall impact to that last point goes right into my next question for you. In your reaction piece, you mention that the year-long forbearance initially afforded through the CARES Act seemed sufficient at the time.

The pandemic and its economic fallout is dragging our far longer than expected. So, how would you weigh the pros and the cons? I think you just mentioned the cons being…and so, maybe there’s more that you can expand there. The cons being, you know, the mom-and-pop investors, the people who were expecting this for retirement, to the pros that it is helping homeowners is there anything else that you would add to that pro and con list?

Greg McBride: Well, I just think big picture, you know, this has been incredibly, you know, disruptive, just from a labor market standpoint to, you know, there are over 20 million Americans drawing some form of unemployment compensation right now. And, you know, obviously financially devastating to those that have seen income disruptions.

We found more than 40% of households are bringing in less income now than they were pre-pandemic. And that’s what makes payment relief options…be it for mortgages, credit cards, car loans, whatever. That’s what makes those payment relief options so important. Just, you know, helping consumers get to the other side of this. You know, it’s just taken getting to the other side of the pandemic has taken a lot longer than I think a lot of envisioned at the outset.

Brena Nath: 40%? That’s a stat I hadn’t seen before. At what point do you think that these extensions will stop? Do you…like, is there a certain, and maybe a better way to ask that question is rather than at what point do you think these will stop…Is there anything that as, you know, someone who’s watching the data closely, that you’re looking for in the data that shows signs of, “Hey, this is probably the last time…” What would that period look like, metrics, or just in general a qualitative answer for when it will stop?

Greg McBride: Well, I mean, I’ll cut to the chase and say that, you know, those extension that we’ve seen now through June 30th…those probably won’t be the last. And the reason for that is, you know, what do we have to see happen? Two things. One, you know, obviously the pandemic itself. We’ve got to get that in the rearview mirror however we measure that. Right? Whether it’s herd immunity or vaccinations reaching a certain number of households, whatever. We’ve got to get to that point.

But then, secondly, even then, we gotta recognize that even post pandemic, we’re still going to have this lingering hangover of long-term unemployment. We got over 20 million Americans drawing some form of unemployment compensation right now. Not all 20 million are going back to work at their previous income the day the pandemic is behind us, the day that we’re given the all-clear. It’s just not going to happen. It’s gonna take time.

And those numbers have to come down meaningfully, I think, before we’re in a position where you can start to see these programs be sunset. So, like I said, I’m happy to see that we’ve seen this extension to June 30, because that’s just what the reality of the situation calls for. But I also think, as we get closer to June 30, we’re gonna recognize that, you know, all is not gonna be sunshine and daffodils come July 1st, that we aren’t gonna need further extensions.

Brena Nath: I will welcome the warmer weather, though. That is something I will accept that comes in June.

Greg McBride: That’s a pretty universal sentiment. That’s perfect.

Brena Nath: Especially across the nation right now where it’s pretty chilly. Well, in that response, I know you just touched on kind of, you know, the jobs report, who are on unemployment. You’ve also mentioned the people who have dropped in income right now, that they’re making…

Looking at all of the forbearance announcements, I know there’s been a lot of different data points that you’ve shared, that the industry shared. What is one that maybe you’re paying attention to very closely, outside of maybe jobs, since we’ve touched on that. But…or on something that you think people aren’t paying attention to when it comes to this data that you think is important to highlight?

Greg McBride: Here’s a number that concerns me. Of those in forbearance, that have, you know, been in forbearance really since the outset of the CARES Act…14% of those borrowers are rolling off without a solution in place.

You know, the vast majority of these forbearances, people either kept up with their payments, or they made a plan at the end that they were going to tack that onto the end, or they got a loan modification to adjust their payments, or they…you know, they were able to refinance the loan. Or, in a very small number of cases, they exited the home, you know, through a sale foreclosure, whatever.

But 14% of those in forbearance are rolling off and just kind of basically falling off the grid in a way, in the sense that, you know, one of the things that I preach to consumers until I’m blue in the face is the payment relief options are available, but you have to raise your hand and ask for it. And so, you know, what I always say to consumers is, as you’re coming up on the end of that forbearance period, the initial six months, the second six-month period, or even these three-month increment… extensions, you’ve got to reach out to the lender or your servicer and say, listen, you know, things just aren’t quite back to normal. I need this extended further.

Fourteen percent of people aren’t doing that. And so, to the industry side of it, I would say, you know, bearing that in mind, you know, maybe there’s a little bit more outreach that can be, you know, aimed at that segment of consumers, so that they don’t fall off the grid, because that’s where the delinquencies are gonna pile up. That’s where the future foreclosures are gonna come from, from those that exited but did not have a plan in place.

Brena Nath: And tie that to…we always like to end with a similar question. I did want to kind of expand on it. We typically ask, you know, is there anything else you’d like to add? But also, knowing the impact. We’ve had a lot of these extensions. You know what we’ve discussed. Is there anything else, looking at the industry, whether it’s servicers or lenders, that you think is important while you kind of have their ear to tell them, or tell them to keep in mind?

Greg McBride: Well, you know, we’re…you know, we talk about the…you know, those that are in forbearance, particularly the in forbearance that came in in the early stages of the CARES Act, and would otherwise be scheduled to roll off in March, April, and May of this year. You know, they now have the ability to extend a couple of additional three-month increments. But we’re going to have new people coming into forbearance in the months ahead, and I think that was one of the key provisions that was announced yesterday is the enrollment in forbearance has been extended through June 30th.

You know, there’s still…between state programs and the Pandemic Unemployment Assistance Program for Self-Employed and Gig Workers…there’s still more than a million Americans filing new unemployment claims each week. And so, we’re not out of the woods by any means. We’re still going to have more homeowners coming into forbearance in the months ahead.

And I just…you know, that…again, there’s long-term unemployment is gonna be an issue that persists throughout 2021 and into 2022. So, yeah, a lot of these people that are entering forbearance now, you know, it may not be short lived. They may be in for a while.

Brena Nath: I know that’s something we’ve been watching closely, and I know we’ve probably…we’re probably gonna chat with you again here, Greg, in the future, kind of as these data points and extensions kind of keep coming out and following the different ways of the industries. We’re from the borrower perspective to the industries perspective. So, always appreciate you kind of coming on here, digging through the data, the impact of it, and just sharing your knowledge with our audience.

Greg McBride: Thank you, Brena. I appreciate it.

Brena Nath: Thanks. Have a great day.