As FHA mortgage delinquencies surge to record high, here’s what to do if you can’t pay

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In another round of terrible housing statistics leavened by a glimmer of good news, mortgage delinquencies spiked dramatically during the early months of the coronavirus recession. And yet almost no one lost a home to foreclosure, thanks to the federal government’s generous forbearance program, which lets borrowers miss payments for up to a year with no penalty.

One eye-catching statistic from the Mortgage Bankers Association’s report released Monday: The delinquency rate on Federal Housing Administration loans rose to a record-high 15.7 percent as of June 30. In New Jersey, the state struck hardest by delinquencies, fully 20.2 percent of FHA borrowers were behind on their loans.

Overall, mortgage delinquencies showed their sharpest rise in the history of the Mortgage Bankers Association’s delinquency survey.

“There is no way to sugarcoat a 32.9 percent drop in GDP during the second quarter,” said Marina Walsh, vice president of industry analysis at the Mortgage Bankers Association. “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.”

FHA loans are extended to borrowers with spotty credit and little cash for down payments, and those homeowners are especially at risk for losing their properties in an economic downturn. However, the housing market has weathered this recession well. The era of tight lending that emerged after the Great Recession created a population of equity-rich homeowners. And with demand for homes outpacing supply in many parts of the country, many troubled borrowers can sell before they go into foreclosure.

What to do if you can’t pay the mortgage

When the coronavirus pandemic began to hammer the U.S. economy, many states forbade lenders from pursuing foreclosures. Meanwhile, Congress passed the Coronavirus Aid, Relief and Economic Security Act, which lets borrowers off the hook for up to a year. How forbearance works:

  • You have to ask. Borrowers must request forbearance. Don’t stop making payments without checking with your lender or servicer.
  • Qualifying is relatively easy. Lenders aren’t demanding proof of hardship.
  • There’s no penalty. Missed payments during forbearance won’t hurt your credit score, and you won’t accrue late charges.
  • You still owe the money. Forbearance pauses payments by extending the length of your loan. After the grace period ends, you’ll resume making regular payments, but the term of your loan will be extended to include the payments you missed.
  • Most loans qualify. While forbearance is mandatory for federally backed loans, including FHA loans, many lenders have voluntarily extended the same terms for loans that aren’t backed by the federal government.

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Written by
Jeff Ostrowski
Senior mortgage reporter
Jeff Ostrowski covers mortgages and the housing market. Before joining Bankrate in 2020, he wrote about real estate and the economy for the Palm Beach Post and the South Florida Business Journal.
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