Three weeks after the passage of the CARES Act, so far the main response of the federal government to the corona virus quarantines, almost three million Americans had signed up to skip their mortgage payments under the act’s forbearance program.
That amounts to about 5.5% of American homeowners and $651 billion in missed payments according to financial consultants Black Knight, Inc.
In terms of underwriting, 4.9% of Fannie Mae or Freddie Mac borrowers are asking for forbearance. At the Veteran’s Administration and FHA, the rate has hit 7.6%.
The CARES Act stimulus package allows borrowers with federally backed mortgages to delay mortgage payments for as much as six months if they have lost income due to the corona virus.
But the concession comes with a major catch — when a forbearance is granted, the payments become due immediately after the grace period ends. As an example, a homeowner with a $2,000 monthly mortgage payment who skipped six consecutive payments legally under the Act, would still face making a $14,000 payment when the six months were up — i.e. all of the missed payments, plus the current one.
That’s why the forebearance program ultimately will be of limited help to homeowners, and is just a form of kinging the can down the road a bit. What would actually help them is a deferral of payments instead. Deferrals work more like loan modifications — the deferred payments become due some time in the far away future, such as when the promissory note connected to the mortgage expires.