FHA mortgages require only a small down payment and are a path to homeownership for many lower-income, minority, and first-time homebuyers. But many are clearly in financial trouble.
The Mortgage Bankers Association says nearly 16% of Federal Housing Administration-insured loans are delinquent — the highest level in records going back to 1979.
But unlike the Great Recession after the housing crash a decade ago, this time the rising delinquencies do not mean a wave of foreclosures is about break across the country.
That's because Congress, in the CARES Act, allowed homeowners to skip mortgage payments for up to a year if they've been hurt financially during the pandemic. And the Mortgage Bankers Association says the vast majority of these homeowners missing payments are in forbearance plans sanctioned by Congress and are therefore protected from foreclosure.
The homeowners are supposed to get affordable repayment plans from their mortgage companies when they get back on their feet, though there have been problems with homeowners getting inaccurate information about the terms of those repayment plans. Homeowners also need to talk to their lender and request to a forbearance plan due to financial hardship; they can't just stop paying their mortgages.
Still, so many people not being able to pay their mortgages underscores the fact that millions of Americans are struggling financially — particularly in lower-income and minority households.
"The COVID-19 pandemic's effects on some homeowners' ability to make their mortgage payments could not be more apparent," said Marina Walsh, the MBA's vice president of Industry Analysis.
She said there are some encouraging signs that the jobs market is improving, with the unemployment rate falling for the third straight month from an April peak of 14.7% down to 10.2% in July. That could help many struggling homeowners.
But Walsh said that improvement is tempered by the ongoing uncertainty around the "ambiguous status of enhanced unemployment benefits and other stimulus measures, the recent surge in new COVID-19 cases, and the retrenchment from reopening in certain states."
"There is no way to sugarcoat a 32.9% drop in GDP during the second quarter," Walsh said. "Certain homeowners, particularly those with FHA loans, will continue to be impacted by this crisis, and delinquencies are likely to stay at elevated levels for the foreseeable future."