The White House is worried about a spike in homeowners defaulting on their mortgages in the absence of further coronavirus economic relief, according to multiple former administration officials.
“If there’s not enough financial support through unemployment benefits or stimulus checks, lots of people who are unemployed won’t have the means to pay their mortgage,” said a former senior administration official.
“The White House is particularly concerned about this,” the former official said.
The Trump administration is currently sketching out plans that would help keep people in their homes if they’re struggling with mortgage and rent payments, the former official said.
7.3% of mortgages nationwide were in some stage of delinquency in May, according to a report released Tuesday by CoreLogic, a real estate analytics firm. Delinquency means a mortgage payment is 30 days or more past due or is already in foreclosure. The report shows that the overall delinquency rate is more than double the May 2019 rate of 3.6%. CoreLogic forecasts the U.S. delinquency rate will quadruple by the end of 2021, pushing 3 million homeowners into serious delinquency.
“The delinquency rate will definitely increase in the coming months and even more so without a relief package,” said Frank Nothaft, chief economist at CoreLogic.
One of President Trump’s executive orders from Saturday is meant to tackle this problem by calling on the Treasury Department and the Department of Housing and Urban Development to identify ways to provide “temporary financial assistance” to those who are struggling to meet their mortgage obligations.
HUD Secretary Ben Carson is expected to announce new policies in line with the executive order that will “prioritize federal funds” to provide financial assistance to struggling homeowners, according to information provided by a HUD spokesman.
Furthermore, the agency will likely give homeowners greater negotiating powers with the institutions to whom they owe mortgage payments to “ensure that renters and homeowners are not forced out of their homes” during the coronavirus pandemic, according to a HUD spokesman.
Some former administration officials say that although there are legitimate worries about an increase in mortgage defaults, throwing more money at the problem may not be the best solution.
“I’m sure there is a concern and fear over mortgage defaults in the White House,” said Tomas Philipson, former acting chair of Trump’s Council of Economic Advisers.
“Everyone is concerned about how this will trickle down, third-party effects of loans going bad,” Philipson said.
Philipson added, however, that incomes have gone up for most people in the past few months thanks to federal government aid such as unemployment benefits and stimulus checks. Therefore, he said, the White House should be careful about distributing more aid to help with mortgages.
CoreLogic’s Nothaft said that the Trump administration and Congress have already taken a number of actions to try to help homeowners.
The Federal Housing Finance Agency announced in June that it would extend the moratorium on foreclosures and evictions involving single-family homes backed by the government until at least Aug. 31. Furthermore, the administration has already provided all federally backed mortgages, or 3 out of 4 home loans in the United States, the opportunity to pause or lower their mortgage payments temporarily, known as forbearance. This forbearance policy will be available to homeowners through 2021.
Nothaft said Trump’s executive order from Saturday didn’t specify any new actions other than encouraging HUD and the Treasury to “work harder” to find new ways to help homeowners.
“Presumably, if there were lots of things the federal agencies could do to help struggling homeowners, they would have done them already,” said Nothaft.
Nothaft said reintroducing the Home Affordable Refinance Program, an Obama-era government program designed to help underwater homeowners refinance their mortgages at lower interest rates, could be an effective way to help those who are scrambling to pay their mortgages.
The program, which expired in 2018, was established in 2009 by President Barack Obama’s Federal Housing Finance Agency in response to the 2007 financial crisis. Approximately 3.45 million borrowers took advantage of the program.
