As the COVID pandemic increases economic pain, Connecticut homeowners are falling behind in paying their mortgages at a higher rate than those in most other states.
According to Black Knight, a firm that provides lenders and mortgage servicers with data and analytics, 9.39% of Connecticut’s 571,513 mortgages were delinquent at the end of June, compared to 7.6% nationally.
At the end of February, just as the first effects of the pandemic were felt in Connecticut, the mortgage delinquency rate in the state was 3.78%. That means the number of delinquencies more than doubled as coronavirus cases surged and an additional 32,040 homeowner missed payments during the pandemic.
Black Knight, which uses projections and data from about two-thirds’s of the nation’s active mortgages to determine rates, ranked Connecticut 10th among the states in as far as delinquencies. Mississippi, which had 12% percent of its mortgages in delinquency at the end of June, was in the No. 1 spot, and Idaho, with a 4.3 % delinquency rate came in last.
Lenders usually begin foreclosure proceedings when a mortgage holder is 90 days or more behind in payments. About half of Connecticut’s mortgage delinquencies are late 90 days or more.
Fortunately for those homeowners, there are few foreclosures right now because of federal and state moratoriums on evictions and foreclosures. The state moratorium on foreclosures ended last week and the federal moratorium ends on Aug. 31.
Still, homeowners with federally backed mortgages, which account for nearly 75% or the mortgages held by homeowners in the state, will be able to continue to apply for forbearance from their lenders.
Forbearance means that a homeowner can ask a mortgage servicer or lender to suspend or reduce mortgage payments for a limited period of time in order for the borrower to regain his or her financial footing. Homeowners who can prove the coronavirus pandemic has prevented them from being current on their mortgage payments can also request a second 180-day forbearance period.
“If anyone has any problem they should contact their lender as soon as possible,” said Thomas Mongello, head of the Connecticut Bankers Association. “Banks do not want to foreclose.”
Forbearance doesn’t mean a homeowner’s payments are forgiven or erased. That homeowner will still be required to pay any missed or the balance on reduced payments in the future. A lender may allow that debt to be paid over time, or add that amount to the end of a mortgage.
In any case, interest on the mortgage continues to accrue during the forbearance period, adding to the overall cost of a home.
Black Knight determined that 7.7% of mortgages nationally are in forbearance, nearly the same percentage of mortgages that are delinquent.
The housing data company also says there are more delinquencies in the Norwich-New London metropolitan area (10.5%) and fewest in the Hartford -West Hartford-East Hartford metropolitan area (8.9%.)
The reasons for the missed payments are many. The U.S. economy has contracted at a rate that hasn’t been seen since the Great Depression and about 30 million Americans have lost their jobs during the pandemic.
The eviction moratorium may have also helped push the mortgage delinquency rate up. Some landlords with mortgages have lost rental income during the pandemic, said Bob DeCosmo, president of the Connecticut Property Owners Alliance.
“The vast majority of our property owners have mortgages,” he said.
While DeCosmo said rent collection has not dropped off substantially during the pandemic, landlords were concerned the state’s eviction moratorium would result in lost revenues that would make it difficult for them to make mortgage payments. “The knee-jerk reaction was ‘I’m going to ask my bank to defer my mortgage,’” DeCosmo said.
Impact on housing market, economy
There’s no agreement about what increasing mortgage delinquency rates will mean for the housing market or the broader economy. Some economists say a pent-up demand for housing created by the pandemic may stabilize the market, even if there is a wave of foreclosures in the future.
The demand has been created because many Americans have been loathe to put their homes on the market in these uncertain times. They point out demand for housing is driven by millennials who are reaching their 30s now and hoping to own a home.
That imbalance between supply and demand had pushed up home prices, at least for now.
But Mark Zandi, chief economist for Moody’s analytics, has predicted 1.5 million to 2 million homeowners could lose their homes as a result of the COVID crisis, leading to an oversupply of houses on the market that depress home values.
The last time there was an upsurge in mortgage delinquencies was during the Great Recession of 2008.
An Office of Legislative Research report found that, as of September 30, 2009, there were 18,415 foreclosure filings, and one in every 14 residential mortgages in Connecticut was either 90 days or more past due or in some stage of foreclosure proceedings.
The OLR report said the magnitude of foreclosures destabilized the housing market; reduced property values; threatened municipal finances and services; jeopardized individuals’ financial, physical, and emotional health; and increased crime rates. Nationally, home values plummeted an average of 30 %.
Far fewer foreclosures are expected in this recession. In addition, Zandi said homeowners in trouble today have better credit scores and more equity in their homes than those who lost their homes a decade ago and are more likely to be able to rebound.