Mortgage defaults hit 10-year high, but there’s more to the story

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There is a very big reason why so many mortgages are in arrears today.

Many homeowners sign up for a mortgage just to fall behind on their payments. Factors like job loss, illness, and other unfortunate circumstances can create a scenario where borrowers become delinquent. Once this happens, problems can arise.

People who cannot meet mortgage payments risk losing their homes to foreclosure. Every missed payment can also seriously hurt your credit score.

In light of that, it’s bad news, at least on the face of it, to see that mortgages with late payments of 90 days or more are on the rise. Indeed, home loans outstanding for at least 90 days are at their highest level since 2010, reports Black Knight.

A 90-day default is considered serious because borrowers will have missed three monthly payments. And Black Knight says there are currently more than 1.8 million more serious crimes than before the coronavirus pandemic.

But when we look at why longer-term delinquencies have increased, the explanation paints a less frightening picture.

Why are mortgage defaults on the rise?

Many homeowners have had no choice but to put their mortgages on hold during the COVID-19 pandemic. Under the CARES Act, distressed homeowners are allowed to request 180 days of forbearance, then an extension of 180 days for a total of 360 days during which mortgage payments are suspended.

Thanks to CARES providing financial relief in light of the crisis, mortgage accounts that land in forbearance as a result of COVID-19 cannot be reported negatively to the three major credit bureaus.

The reason delinquency rates are so high is that Black Knight’s tally includes nonpayments that are subject to forbearance agreements. In other words, everyone whose loans are currently on hold is still counted in the above statistic. Even though from a credit report perspective, they are not recorded or accused of being delinquent. The result, however, is the same, with delinquencies still reaching a 10-year high.

Should you suspend your mortgage now?

Normally, suspending a home loan is not a decision to be taken lightly. This is because a forbearance can appear as a negative mark on your credit report. But as we just said, borrowers who have been affected by the coronavirus need to be protected against it.

As such, if you think you won’t make an upcoming mortgage payment, or multiple payments, it’s better to put your loan on hold than to be late. Late mortgage payments could not only hurt your credit; they could also put you at risk of seizure, and that’s a load of stress you just don’t need.

Of course, one thing to keep in mind is that you will be must be prepared to repay your missed mortgage payments once your forbearance period ends. Before rushing to ask for a forbearance, ask your lender what their repayment policy will be. Knowing how long you will have to find that money will help you better prepare.

Finally, before putting your loan on hold, you may want to discuss other relief options with your lender. If you’re in a position where you can make partial payments on your mortgage, for example, that may be better than putting your loan payments on hold completely so you don’t fall too far behind. It’s always worth being open with your lender, especially at a time like this when so many Americans are struggling financially.

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