Millions of homeowners remain vulnerable as forbearance winds down

Minority and low-income areas, disproportionately impacted by the pandemic, will likely see the worst fallout

(The Real Deal)
(The Real Deal)

Theresa Battle’s first thought each morning is whether today is the day she’ll lose her two-story house in Jamaica, Queens, to foreclosure.

“Every day when I get up, I’m afraid of what’s going to happen,” said Battle, 57, who runs a daycare center out of the property.

Like millions of Americans, she was unable to keep up with her mortgage payments after the pandemic forced her to close her business in March 2020, cutting her income in half.

She thought she’d be protected by the federal government’s forbearance program, which allows homeowners who lost income because of Covid-19 to skip mortgage payments for up to 18 months without a penalty. When she asked for help in June 2020, her mortgage servicer, BSI Financial, turned her down, she said, because her home loan isn’t backed by the federal government.

BSI’s private investor clients, not BSI itself, determine whether to accept or deny a forbearance request, a spokesperson for the Texas-based firm said in an email. As of June 1, about 1,800 borrowers were on an active forbearance plan with the servicer. BSI declined to comment on Battle’s specific case due to privacy concerns.

First implemented as part of the CARES Act, the forbearance program — the biggest government intervention in the $10 trillion mortgage market since the financial crisis of 2008 — was designed to prevent a flood of foreclosures in the midst of a pandemic. It freezes the foreclosure process for most borrowers with government-backed loans, but stops short of mandating similar relief for borrowers with privately backed loans, which account for about 30 percent of the U.S. mortgage market.

Flood averted

So far, the number of homeowners missing payments has been slowed, if not entirely stemmed. The number peaked in June 2020, with 4.3 million homeowners in forbearance. As of late May, it was down to 2.2 million, according to Black Knight.  About 5.6 percent of those are ”re-entries,’’ borrowers who were in forbearance, resumed payments, then returned to forbearance, according to the Mortgage Bankers Association. Overall, about two-thirds of borrowers who were in forbearance have exited the program, the MBA said. 

While some may be able to refinance at lower rates or reach agreements with their lenders to catch up on missed payments, it could be devastating for others.

Some homeowners will face foreclosure or be forced to sell their homes, including those like Battle who were denied forbearance, as well as those who are nearing the end of their forbearance period but still can’t afford to make payments.

“I think the thing to focus on is what is the person’s ability to repay,” said Zahra Jafri, president of New York-based Lynx Mortgage Bank. “If they’re going to stay in their home with their mortgage, is their ability to maintain the home and repay that loan still there?”

The Consumer Financial Protection Bureau, a federal agency charged with ensuring that banks, other lenders and the financial services industry follow the rules, received the most mortgage-related complaints in three years in March. Homeowners griped about delays, denials and a lack of clear instructions from servicers.

The CFPB estimates that about 3 million homeowners are behind on their mortgages and says a disproportionate number of those borrowers are Black or Hispanic. About 1.7 million borrowers will exit the program beginning in September, with many at least a year behind on their payments.

“More borrowers are behind on their mortgages than at any time since the height of the Great Recession,” said Dave Uejio, CFPB’s acting director, in a statement. The CFPB will do “everything in our power to help families stay in their homes,” he added.

One of the agency’s responses to the trouble it sees coming is a proposal to extend the moratorium on foreclosures until the end of 2021.

Zombie homes

Mortgage industry officials warn that extending the moratorium could end up making homes even more unaffordable by further reducing the supply of available properties, sparking bidding wars for those that remain.

Home prices soared to a 13.2 percent year-over-year gain in March, according to the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, the biggest annual gain in a single month since December 2005.

“The moratorium did what it was intended to do,” said Jason Vanslette, a South Florida-based attorney who represents lenders and servicers in foreclosure cases. “[But] I think there’s always unintended consequences for something that was considered inherently good.”

For those unable to catch up on their mortgage payments, selling their home may be the best solution. Though selling into a hot market may get the banks off their backs, it will do little to solve their housing problems over the long term, said Ira Rheingold, executive director for the National Association of Consumer Advocates.

“What is that family going to do if they can’t afford their current house?” he said. “You’re not going to be able to afford a house, because housing prices are so high.” 

The moratorium also suspended foreclosure cases that were filed before the pandemic, leaving about 250,000 loans in limbo.

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That backlog could account in part for the 21 percent spike in the second quarter on foreclosures of homes sitting empty, known as “zombies,” said Rick Sharga, executive vice president of the research firm RealtyTrac. New York had more zombie homes than any other state for the quarter, followed by Ohio, Florida, Illinois and Pennsylvania, according to ATTOM Data Solutions.

The current shortage of homes for sale means that even a surge in foreclosures probably wouldn’t move prices much nationally. But some areas of the country — those with the highest unemployment and the most borrowers in forbearance — will be much harder hit, said NYU Law professor Michael Ohlrogge.

‘A structural problem’

Minority and low-income neighborhoods, which have suffered disproportionately from the pandemic, will also likely see the worst fallout from the end of forbearance.

“Communities of color, minorities, the elderly, the people that were targeted by these subprime loans for years,’’ said Bruce Jacobs, a foreclosure defense attorney in South Florida, “they’re the ones that have no protection by the government [foreclosure moratorium]. It just seems inherently unfair.”

Even with a moratorium in place, older foreclosure cases based on private loans are still working their way through the system, adding to court backlogs as forbearance ends. Jacobs is currently working with Ana Lazara Rodriguez, an 82-year old woman who was a political prisoner for 19 years in Cuba under Fidel Castro, to stop her eviction from a foreclosure initiated in 2009.

In a hearing on May 27, Jacobs asked a judge to stop the eviction until the conclusion of a lawsuit brought by Rodriguez that questions the legality of the loan documents.

The garden outside Rodriguez’s tangerine-colored home, which she usually tends to weekly, is a mess. She canceled her regular treatment appointment for macular degeneration to attend the hearing, and she’s starting to think about what she will do if she has to leave her home of 26 years.

“I would have to live in my car,” she said. “It’s the only possession I have.”

The judge did not grant the injunction until June 4, two days after a sheriff served Rodriguez an eviction notice. While Rodriguez gets to stay in the home for now, her team needs to raise enough money for a bond that will go toward protecting the new owner from losses incurred while the case continues.

The legitimacy of loan paperwork has been a common issue in the Sunshine State since the financial crisis of 2008, when a spike in foreclosures revealed that banks often lost the original paperwork when mortgages were traded. Instead, they generated affidavits robo-signed’’ with the names of bank employees attesting to the lost documents’ existence.

“It’s my belief that there’s a structural problem within the system,” said Laura Wagner, executive director of Floridians for Honest Lending. She’s connecting state legislators with foreclosure defense attorneys to advocate for cracking down on lenders and servicers that use fraudulent means to seize homes.

After Theresa Battle was denied forbearance, what followed was a series of discussions with a BSI Financial representative about possibly modifying her loan, but it seemed she was perpetually missing a required document. When she tried to resume partial payments, BSI Financial wouldn’t accept them, she said.

By September, Battle thought things might be looking up. Her daycare was set to reopen that month, and talks with the servicer seemed to be turning a corner, she said.

“Then I received papers that they were going to start foreclosure.”

‘Stuck forever’

Desperate for help, Battle reached out to a lawyer whose daughter attends her daycare, who ultimately put her in touch with senior housing counselor Tenying Yangsel at Chhaya Community Development Corporation, which represents South Asian and Indo-Carribean communities in New York City.

“They’re giving her a hard time,” said Yangsel, who began communicating with BSI Financial on Battle’s behalf in January. Yangsel says she has worked with more than 150 homeowners since the start of the pandemic and helped 77 of them enter forbearance programs. 

Chhaya was part of a coalition that met in May to give feedback on how New York state can use part of the funds from the Biden administration’s American Rescue Plan to help homeowners like Battle. Signed into law on March 11, it provides emergency aid to cover back rent, mortgage payments and utility costs.

In the meantime, Battle said BSI has offered her a three-month payment plan that would require a $7,000 lump-sum payment and mortgage payments that jumped to about $3,600 from her previous payments of $2,471. 

When Battle looks at the unpaid balance of her loan, which now sits at more than $500,000, she said it looks as if she hasn’t paid anything.

“I just feel like I’m stuck with them forever,” she said. “This is really tough to go through.”

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