Millions of borrowers (1) remain in the forbearance program created by the CARES Act. With many still out of work or rebuilding after a difficult year, the question as people begin to exit forbearance will be:how can the industry help prevent having to foreclose on borrowers?
While we all hope that the majority of people exiting forbearance will be able to stay in their homes, those with fewer resources and those who have not been able to regain their pre-Covid household income could be on very shaky ground.
Who needs the most support to avoid foreclosure?
1. Borrowers with little or no equity.
If borrowers have ample equity in their homes, they can avoid a foreclosure by proactively selling. In fact, they may benefit from a housing market characterized by historically low inventory of homes for sale, historically low mortgage rates, and strong demand.
Those who have little or no equity in their homes, however, are also likely to experience payment problems. Without the safety net of home equity, they are more likely to default and suffer foreclosure.
2. Borrowers with no repayment plans.
Many borrowers exiting CARES Act forbearance have a repayment plan in place to help them avoid default and foreclosure. From July 2020, when borrowers began exiting forbearance, through the end of last year, about 87% of them had some form of repayment plan. Loans were reinstated, with missing payments deferred to the end of the loan, paid off, or modified.
That said, some homeowners have left the CARES program without a repayment plan in place. These borrowers have increased the risk of default and disclosure.
3. Borrowers with inconsistent payment schedules.
In many ways the pandemic most impacted people who work hourly wage, part-time, or seasonable jobs. While these jobs are returning, schedules and paydays for many workers are still erratic, which can make recurring mortgage payments difficult to achieve.
As Federal programs like the CARES Act come to an end, borrowers in any of these situations are going to rely more heavily on mortgage companies to provide flexibility and payment support. Mortgage companies will need to offer new types of loan products and payment models to meet the needs of these types of customers.
By partnering with EarnUp, IMBs can proactively help borrowers make payments on time and avoid foreclosure. Customers of participating IMBs will be able to use EarnUp’s self-service online portal that empowers them to take control of their payment options and make adjustments. For example, they can synchronize mortgage payments with paydays to help budget, possibly making extra payments throughout the year.
EarnUp ensures funds are available before payments are processed. Automated alerts inform borrowers and mortgage companies in advance before payments are due. Furthermore, EarnUp helps servicers preemptively identify borrowers in danger of missing payments and provide potential workouts.
On the borrower side, using EarnUp to make loan payments, 35% of homeowners pay off their debt faster, and 26% save money on interest (2).
By partnering with EarnUp, mortgage companies can ensure more borrowers successfully repay their loans and stay in their homes. Proactive, automated communication and flexible payment models help you support the most vulnerable, highest risk borrowers without increasing your servicing costs.
Learn more about how EarnUp’s enterprise technology solutions help loan servicers and their customers reach their goals.
(1) According to MBA’s estimate, 2.2 million homeowners are in forbearance plans. https://www.mba.org/2021-press-releases/may/share-of-mortgage-loans-in-forbearance-decreases-to-436-percent
(2) Based on randomized surveying of EarnUp customers.