CFPB Finds Minorities at Higher Mortgage Default Risk

Even as the number of homeowners in mortgage forbearance programs dwindles, those remaining are at rising risk of default, and minorities make up a disproportionate number of those households, according to a CFPB report.

The Mortgage Bankers Association estimates that 4.5% of mortgages were in forbearance in the week ending April 25, representing about 2.23 million homeowners. At its peak in early June 2020, MBA estimated 8.6% of mortgages were in forbearance, or about 4.3%.

The CFPB analysis found a significant share of these borrowers were minorities, lived in majority-minority tracts and lived in relatively lower-income areas.

“As programs designed to aid mortgage borrowers during the pandemic wind down, borrowers in forbearance programs or who are delinquent may be disproportionately at risk of losing their home,” the CFPB report said.

In another report Wednesday, MBA’s Research Institute for Housing America found 4.9 million households missed at least one rent or mortgage payment in the first quarter, down from 5 million in 2020’s fourth quarter, 6.2 million in third quarter and 11 million in the second quarter.

The institute found 4.9% homeowners, or 2.3 million households, missed their mortgage payment in March 2021, down only slightly from 5% in December.

Among renters, 7.7% of them (2.6 million households) missed, delayed, or made a reduced payment in March 2021, down from 7.9% in December.

Overall, 23.7% of renters and 14.2% of homeowners have missed at least one housing payment during the pandemic, but only 8.6% of renters and 6.8% of homeowners missed more than two payments.

This marked the fourth round of the institute’s “Housing-Related Financial Distress during the Pandemic” study. Its surveys have followed the same set of 8,000 households since before the pandemic.

Gary V. Engelhardt, an economist at Syracuse University and co-author of the report, said the economy’s rapid improvement, rising vaccination rates and declining COVID-19 cases bode well for the unemployed and underemployed.

In turn, increased employment will allow households to resume their housing and student debt payments and pay back past-due amounts.

“However, millions of families are still facing economic distress, despite improving conditions since last March,” he said.

In another report released Wednesday, the CFPB said it received the highest number of mortgage complaints in three years.

“More borrowers are behind on their mortgage than at any time since the height of the Great Recession,” CFPB Acting Director Dave Uejio said.

“Communities of color have been hit hard by the pandemic, and the latest data show that many borrowers are still hurting,” Uejio said. “The CFPB will continue to seek and actively respond to developments in the market, doing everything in our power to help families stay in their homes. As we warned mortgage servicers last month, unprepared is unacceptable.”

The CFPB is seeking comments until May 10 on a proposal intended to help prevent avoidable foreclosures for borrowers affected by the COVID-19 emergency.

That proposal would temporarily require servicers to enhance communications with borrowers who are delinquent or in forbearance, allow servicers to offer certain streamlined loan modification options to borrowers with COVID-19-related hardships, and require servicers to afford all borrowers a special pre-foreclosure review period.