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According to research published by the New York Federal Reserve blog, the current group of American borrowers in tolerance is more vulnerable to delinquency when the program ends, but that doesn’t mean delinquency is approaching the levels seen during the financial crisis.
A crucial part of the U.S. policy response to the coronavirus crisis was to reduce the risk of a pandemic-driven housing attack and a wave of foreclosures like the one seen during the financial crisis. An important policy arose from the Securities Act that allowed mortgage-backed borrowers backed by the federal government to stop or reduce debt service payments for six months, with some agencies granting an additional 12 months of extension.
The authors said that the success of the program had protected borrowers, in contrast to the financial crisis “when the crimes and foreclosures of growing consumers were the engine of the financial crisis and then in a vicious cycle, as a result of the crisis, as house prices fell and nearly 12 million Americans went into foreclosure. ”
More than 6.1 million mortgage borrowers have come into tolerance since the start of the pandemic, but many sold their properties as house prices rose due to demand for housing. More than 2 million are still looking for payday loans on loans as of March, of which 1.2 million had been suspended in June last year or earlier.
Borrowers with the highest credit scores before the pandemic were less likely to seek relief and only a quarter of them remained in tolerance, compared to those with a lower credit score than the pre-pandemic, where half they were still in tolerance, according to the authors.
One manifestation of this is that their rate of payment was lower than the rate of payment of those who abandoned tolerance more quickly. As a result, in March, more than 70% of borrowers in a situation of tolerance did not make payments, a share higher than any month in 2020.
The researchers said the serious delinquency rate could rise to 3.8 percent once the measure is completed, if all of these borrowers become delinquent. This would be above the pre-pandemic rate of 1.3%, but below the levels observed during the financial crisis.
“However, from where we are now, it seems unlikely that the end of mortgage tolerance will be associated with more than 6% of mortgages becoming delinquents of 90 or more days, as occurred during the Great Recession, ”the researchers said.
How these borrowers recover will depend on the U.S. recovery and policy measures.
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