Despite Option To Pause Payments, 400,000 Homeowners Fall Behind On Their Mortgage

It seems there’s a communication issue with some of America’s struggling homeowners.

According to a new report, around 400,000 U.S. homeowners have become “needlessly delinquent” on their mortgage loans, despite qualifying for a payment-free forbearance plan. 

Under the CARES Act, homeowners with a federally-backed mortgage can hit pause on their monthly payments if facing financial hardship. That relief can last up to 360 days from the date of application.

Data from the Mortgage Bankers Association shows that most struggling homeowners have taken the government up on its offer. As of this week, about 6.81% of all mortgage borrowers—or about 3.4 million households—are on a forbearance plan. 

About 400,000, though? They’ve fallen at least a month behind on payments and could be at risk of foreclosure.

Michael Neal and Laurie Goodman, researchers for the Urban Institute, say it likely comes down to misconceptions about forbearance—or possibly a lack of awareness that forbearance exists at all.

“These borrowers may not know they are eligible for forbearance or do know, but wrongly fear having to make double payments when the forbearance period ends,” the researchers wrote. 

That latter statement was a common worry when the pandemic first began. Many homeowners feared pausing payments would mean sky-high payments or a huge lump sum due later on.

While lump-sum repayments are an option, they’re not required in most cases.

“Forbearance payback options vary based on the mortgage type,” says Michael Sema, founder of mortgage marketplace Get a Rate. “Homeowners can make a lump-sum payment at the end of the plan, re-pay the amount owed over a specific time by adding the balance to the total mortgage balance and payment, or keep paying the same mortgage payment by extending the mortgage term.”

According to the Institute’s analysis, an outreach campaign alerting struggling homeowners to these options is critical—at least if they want to keep their homes. In many cases, a lender can begin the foreclosure process after just a few missed payments.