Before Hurricane Ida made landfall in New Orleans, many of the city’s lower-income homeowners were already struggling.
Of the 35,380 Federal Housing Administration-insured loans in New Orleans, 17.9%, or 6,600, were delinquent as of August, per an analysis of Department of Housing and Urban Development data from the American Enterprise Institute. That puts it behind only a handful of other cities in the country in delinquent share of loans.
The delinquency rate for FHA loans, which typically serve lower-income borrowers, has been consistently much higher than that of borrowers with Fannie Mae or Freddie Mac-backed mortgages. Nearly 80% of all FHA and Veterans’ Affairs loans now in forbearance – 755,000 loans, as of the end of July — are set to expire through the remainder of 2021, according to Black Knight.
So far, there has been little specific guidance from federal agencies on what the rules of the road are as borrowers navigate the dual tracks of COVID-19 and Hurricane Ida mortgage assistance. And forbearance, while it keeps people in homes in the immediate term, shuts those same borrowers out of refinancing, and a longer pause makes it more difficult to restart payments.
Following President Joe Biden’s disaster declaration, HUD is providing a 90-day moratorium on FHA foreclosures in the impacted counties. HUD also provides FHA insurance to those whose homes were damaged, and HUD-approved loan counselors can assist borrowers searching for resources.
As the economic recovery from COVID-19 continues, conflicting trends in mortgage credit availability have emerged. But there are innovative ways for lenders to both reduce uncertainty and keep credit flowing during economic downturns, benefiting both lenders and consumers.
Presented by: FICO
“FHA’s special disaster relief and recovery options are consistent with its COVID-19 recovery options for homeowners with FHA-insured mortgages,” said a HUD spokesperson. “With both of these relief options in place, plus the automatic 90-day foreclosure moratorium in the affected disaster areas, all homeowners with FHA-insured mortgages who have been affected by Hurricane Ida will have access to mortgage payment relief and recovery assistance.”
Servicers must work with borrowers coming out of forbearance on all available home retention options, the spokesperson added.
In Louisiana, 240,000 people applied for relief as of Sept. 2, per the Federal Emergency Management Agency. It’s unclear what portion of those applications were related specifically to housing assistance.
Federal agencies are telling consumers to reach out to their mortgage servicers. Earlier in the week, Fannie Mae sent out a bulletin directing Hurricane Ida-impacted consumers to ask their mortgage servicers about Covid-19 relief options.
“We urge everyone in the path of the storm to focus on their safety,” said Cyndi Danko, Fannie Mae’s vice president of single-family risk management. “Fannie Mae is committed to ensuring assistance is available to homeowners and renters in need and we encourage residents impacted by this storm to seek assistance as soon as possible.”
While forbearance is an important tool to keep people from losing their homes, it comes at a cost. Researchers at the Urban Institute found that forbearance has driven Covid-period credit tightening. Both the GSEs and the FHA placed penalties on loans that go into forbearance before they can be sold.
The Housing Policy Council, a trade organization whose members include mortgage servicers, said mortgage servicers have expressed concern about the implications of borrowers with Covid-19 forbearance further delaying payments. There could be no end in sight.
“The more that missed payments accumulate, the harder it is to resolve the situation,” said Meg Burns, HPC’s executive vice president.
The Consumer Financial Protection Bureau, which is watching servicers closely, did not have any specific guidance for servicers on how to navigate Hurricane Ida forbearance relief.
A CFPB spokesperson said that borrowers should reach out to their servicers about their situation and how forbearance, deferrals or loan modifications for federally declared disasters will fit in with existing Covid flexibilities.
Kate Bulger, senior director of business development at Money Management International, a nonprofit credit counseling and financial literacy organization, said that unless there is a major rule change, borrowers will first complete their COVID-19 forbearance plan before receiving separate disaster assistance.
Although the reason for the relief differs, this means that borrowers may have paused payments for up to 2.5 years.
“As HUD housing counselors, we’re responsible for making sure consumers aren’t taking more [assistance] than they need,” said Bulger. “We don’t want people to just take 2.5 years of payment relief and then start making payments again. They’re way out of practice at making payments at that point.”
Bulger also pointed out that for FHA-insured mortgages, there’s no centralized loan counseling agency, but rather it is “servicing shop by servicing shop.”
Federal agencies are encouraging borrowers impacted by Hurricane Ida to call their mortgage servicer, Bulger said that engaging with loan counselors might be more appropriate. Borrowers typically feel less comfortable speaking candidly about financial hardship with the entity that holds their mortgage debt, she said.
In disasters, it’s “tough to work through decisions when you’ve got this trauma you’ve experienced that casts a shadow over everything,” said Bulger.
Proactively reaching out to borrowers, using self-serve forbearance opt-ins and text message communication can help, said Jane Mason, CEO of Clarifire, which automates workflows and provides tools to navigate the influx of forbearance requests and loan modification approvals.
For now, Mason said, mortgage servicers must be proactive, as the response from federal agencies becomes more clear.
“We know that mortgage servicers and banks can face liquidity issues when people are not paying for 2.5 years,” said Mason. “If you wait — from a servicer perspective — it’s just going to get worse.”