Positive payment history coupled with measures under the CARES Act kept mortgage defaults from increasing month-on-month, but borrowers who were in trouble grew exponentially year over year, according to TransUnion.
The percentage of borrowers who were in default over 60 days rose from 1.07% in June to just 1.08% in July and from 1.41% a year earlier. The proportion of 30-day arrears was similar, falling in July from 1.83% in the previous month to 1.81% and year-on-year to 2.68%.
"The moratoriums definitely play a big role in crime figures, but we are seeing that even consumers are paying with tolerance," said Matt Komos, vice president of research and advice at TransUnion, in an interview. "Once a consumer participates in such a housing scheme, their crime status cannot deteriorate. However, when they make payments they can move from the past to the present."
While this mix of pragmatic payment behavior and forbearance coverage suppresses arrears, hardship loans – defined as deferred, forbidden, overdue, or frozen accounts – rose about eight times more than a year ago.
About 6.15% of mortgages were in bad shape in July, up from 0.75% the previous year. Although the coronavirus caused the exponential surge, the percentage has declined since peaking at 7.48% in May. This decline matches the general forbearance that peaked in late May and early June.
Future growth in the number of distressed borrowers depends on further enhancements to the CARES Act, including stimulus packages and foreclosure embargoes. As with the COVID-19 crisis as a whole, the situation remains fluid.
"At the end of July, many government programs to help consumers ran out, so they are stuck for the moment," Komos said. "We'll be watching this closely through August and tracking how payment behavior changes, if it's out of tolerance, to see if crime shifts. The next few months will give us a better indication of where things might go . ""