The U.S. Government Accountability Office (GAO) published its findings on the impact of the COVID-19 protections and other federal efforts, and how they have reduced default and foreclosure risks.

The report considers data from the National Mortgage Database, the Mortgage Bankers Association, and Black Knight, Inc. The GAO also interviewed representatives from federal agencies on the efforts to communicate with borrowers and limit default and foreclosure risks.

“It’s pretty clear that the forbearance and foreclosure efforts helped people stay in their homes during the pandemic,” John Pendleton, GAO director, financial markets and community investment team, said in a podcast. “In May of last year, about 3.4 million mortgages were in forbearance, and this allowed homeowners to miss their mortgage payments if they were experiencing hardships. Foreclosures plummeted during the period as well and were down 85 percent in 2020 compared to the previous year. So, yes, it helped literally millions of people.”

The mortgage forbearance provision of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) allowed borrowers with loans insured, guaranteed, made directly, purchased, or securitized by federal entities (about 75 percent of all mortgages) to temporarily suspend mortgage payments during the pandemic. According to the GAO’s analysis of the National Mortgage Database, use of the forbearance provision peaked in May 2020 at about 7 percent of all single-family mortgages, and gradually declined to about 5 percent by February 2021. In February 2021, about half of all borrowers who used forbearance during the pandemic remained in forbearance, the agency stated.

Data also showed forbearance use was more common among borrowers at a greater risk of mortgage default, such as first-time, minority, and low- and moderate- income homebuyers insured by the Federal Housing Administration and rural homebuyers with loans guaranteed by the Rural Housing Service. Black and Hispanic borrowers, who were more likely to have been economically affected by the pandemic, used forbearance at about twice the rate of white borrowers.

The GAO also found only a small percentage of borrowers, less than 1 percent, who were covered by the CARES Act missed payments during the pandemic and have not used forbearance.  These borrowers tended to have lower subprime credit scores, which indicates an elevated risk of default compared to those who were current or in forbearance. This, along with the fact they have not taken advantage of forbearance programs, means these borrowers may be at a greater risk of foreclosure once the moratoria expire.

Federal entities also have taken additional steps to limit pandemic-related fallout, including expanding forbearance options so borrowers have additional time to enter and remain in forbearance and streamlining and introducing new loss mitigation options to help borrowers reinstate their loans after forbearance.  The Consumer Financial Protection Bureau amended mortgage servicing rules to allow servicers to simplify the processing of loss mitigation actions and establish procedural safeguards to limit avoidable foreclosures until Jan. 1, 2022.

The risk of a spike in defaults and foreclosures also is mitigated by a stronger equity position of borrowers than seen during the last financial crisis. Home equity can help borrowers with ongoing hardships avoid foreclosure by allowing them to refinance or sell their home to pay off the remaining balance. During the Great Recession, about 17 percent of all borrowers and 44 percent of delinquent borrowers had no home equity.  Compared with data from the National Mortgage Database, borrowers this time around are in a much better place: only about 2 percent of borrowers who were in forbearance or delinquent in February 2021 did not have home equity after accounting for home price appreciation.

“Federal actions early in the pandemic staved off the wave of foreclosures that were feared when the economy dipped,” Pendleton said. “Based on the data we reviewed, it’s pretty clear that the forbearance options and foreclosure moratorium gave millions of borrowers some needed breathing room to make it through the pandemic.

“But the programs are ending, and an unknown but inevitable number of foreclosures will resume when the moratorium ends. Mortgage payments were deferred, not forgiven. So, it will take time to see how big an impact the pandemic has truly had on homeownership.”