Almost Half of Mortgage Borrowers in Forbearance Kept Paying

(Bloomberg) -- A large number of Americans who asked to postpone their loan payments during the pandemic ended up paying anyway, adding to a growing body of data that suggests households are steeling themselves for tougher times ahead.

Some 46% of the 4.25 million homeowners who had mortgages in forbearance at the end of April made full payments that month, according to Black Knight Inc. data released Friday, a figure that doesn’t include partial payments. About 21% of homeowners in forbearance had made their May payments in full as of earlier this week, a number that could grow over the next several days before those borrowers are officially late on their mortgage.

There’s no doubt that tens of millions of households are in dire financial shape after the deadly coronavirus prompted U.S. states to temporarily shut down commerce, resulting in much of the financial industry bracing itself for an expected surge in defaults later this year. But recent reports from financial companies indicate that at least some borrowers requested payment deferrals as a precaution, even if their income didn’t fall.

“We’re hearing that actually across the industry,” said Matt Komos, vice president of research and consulting at credit bureau TransUnion. Borrowers of all types, including those with spotty credit considered subprime, have been paying down their loan balances while in forbearance plans, he said.

“If the consumer is uncertain about the future, they may be looking to protect themselves a bit. Consumers are trying to stay on top of this,” Komos said.

TransUnion data, which is culled from Americans’ credit histories, show that credit-card holders last month made payments far above monthly minimums that on average reduced their debt loads by almost 4% compared to March.

Unexpected Strength

At Bank of America Corp., roughly a third of people who asked to delay their credit-card bills ended up paying, Chief Executive Officer Brian Moynihan said Tuesday in a Bloomberg Television interview. Those borrowers actually had higher balances in their bank accounts, Moynihan said, a phenomenon he credited to stimulus payments from the federal government and actions taken by the Federal Reserve.

Checks from the government “have worked to offset the unfortunate aspects of very high unemployment -- and so far, you’re not seeing delinquencies and things rise,” Moynihan said.

“We expect to see charge-offs coming later on, as this thing goes on, but the reality is right now you’re not seeing the type of credit damage that you’d expect to see with this amount of downdraft in activity,” he added.

Fewer households were late in April on their cards, car loans, home mortgages and personal loans than in March, TransUnion data show.

In the unsecured personal loan market, one of the fastest-growing types of household debt, Americans on average made much larger payments in April than in March when compared to their monthly minimums.

Komos cautioned that Americans’ unexpected payments could be temporary, and Moynihan said his bank still expects more loans to sour later this year. It’s also possible that households that made payments last month could quickly stop as joblessness continues to climb.

Stimulus Plans

About a third of Americans who report being financially affected by the pandemic plan to use federal stimulus checks or personal savings to pay their bills or make loan payments, more than double the share of consumers who said they didn’t know how they’d pay or would use payment holidays, according to a TransUnion survey earlier this month.

Financially affected consumers said they have close to seven weeks until they won’t be able to pay their bills and loans, the survey shows.

Lenders have been debating what kinds of steps to take when borrowers facing hardship run out of time. While considering who gets extensions on when payments are due, some banks plan to scrutinize borrowers and their accounts to determine who has the ability to pay. At least some banks plan to push borrowers to resume making payments, or at least accrue interest if they remain in forbearance.

Government policy will largely dictate how much additional time borrowers have to make their mortgage payments. Most home loans are backed by the federal government, and so far officials in Washington have tried to give borrowers flexibility to meet their obligations.

But even many borrowers who are postponing their payments on government-backed mortgages are still making payments. At Ocwen Financial Corp., 41% of these homeowners made their payments, Chief Executive Officer Glen Messina said on the mortgage company’s earnings call earlier this month.

“The question is what happens next,” Moynihan at Bank of America said. “And that’s what we’re all watching.”

©2020 Bloomberg L.P.

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