US borrowers benefit in large part from the CARES (Coronavirus Aid, Relief, and Economic Security) law, which grants up to 12 months of forbearance to homeowners with federally guaranteed mortgages.
However, since the CARES law foreclosure moratorium does not cover borrowers with mortgages not granted by an agency, they are more likely to lose their home, unless they have entered into a plan. forbearance agreed privately.
Urban Institute study explores the challenges of “unprotected homeowners,” concluding that black and brown Americans are more likely than white borrowers to have unprotected delinquency and suffer the negative financial consequences of the pandemic. And of all the homeowners struggling to make their mortgage payments during this national health crisis, those of color are the most likely to lose their homes. Perhaps public policies could reduce some of these risks, the researchers say.
As the Institute has previously reported, some 400,000 borrowers are “unnecessarily delinquentwhich means that although they are eligible, they have not entered into forbearance agreements. Associate researchers Michael Neal and Caitlin Young report that a large portion of needlessly delinquent homeowners come from predominantly black neighborhoods and Hispanic.
“Based on an analysis of data from the credit bureau and the American Community Survey (ACS), we find that homeowners in predominantly black or Hispanic neighborhoods are slightly more likely to be unprotected than those in neighborhoods. predominantly white, ”the researchers wrote. “This analysis corroborates other research results showing that, across many economic indicators, the pandemic had a worse impact on communities of color. “
The most important consequence of this situation for unprotected borrowers, of course, is the threat of foreclosure. But a second major result is the damage that unprotected delinquency has on credit scores.
Many Americans are behind on their housing payments, but only those who participate in formal forbearance programs protect their credit scores.
The authors point out that today’s tight credit environment puts more strain on unprotected borrowers.
“The combination of low credit scores and strict lending standards make it impossible for these delinquent borrowers to refinance to reduce their payment or extract equity from their home and make it more difficult to obtain a personal loan at a reasonable rate. to overcome this crisis, ”they noted. . “Coming out of the pandemic, as the economy begins to recover, these borrowers will face limited access to credit for small business investments, mortgages and other loans that could help them increase their wealth. “
The study concludes that a solution lies in targeted policies and efforts – a combined awareness of service providers, consumer groups, and government – towards predominantly Black and Hispanic neighborhoods. And information should be offered in multiple languages to reach borrowers in communities with proportionately large non-English speaking populations.
Access the full study on Urbain.org.