By Jonnelle Marte and Katanga Johnson

(Reuters) – Nearly half a million homeowners with low incomes in America are about to end their mortgage forgiveness plans. These plans allowed them to halt loans payments while the pandemic raged. This presents a challenge for mortgage service companies that help struggling borrowers transition to more affordable payment options.

Over the next few weeks, the rate of people leaving plans is likely to rise as those who signed up in advance of the pandemic hit the 18-month cap for forbearance. Nearly 80% of the homeowners who signed up for programs during the pandemic are now out of them. However, 20% of those remaining live in higher-density areas, have poor credit scores, and have lower incomes.

Brookings Institution research suggests that the missed mortgage payments can add up to $15 billion or $14,200 per individual in “forbearance excess”, according to Brookings Institution research.

“When coupled with unemployment insurance expiring and other things happening at the same time, it’s not clear that these folks will have an easy time coming out of this,” said Amit Seru, a professor at Stanford Graduate School of Business and a senior fellow at the Hoover Institution.

Borrowers will have the option to make late payments and move them to the end of loans. Others will also be able take advantage of a strong housing market in order to sell or refinance their home. Forbearance may be available for homeowners in financial hardship who sign up later.

RACIAL GAPS ARE HARSHING

Pandemic-related job losses worsened homeowner racial inequalities. The Federal Reserve Bank of Philadelphia found that black homeowners and Hispanics were 30% more likely than other borrowers to be behind with their mortgage payments in the initial months of crisis. These losses occurred between April and November 2020.

Black Knight (NYSE):, a data and mortgage technology provider, reports that 7.6 millions borrowers have entered forbearance in the past pandemic. That’s about 15% of all mortgage holders.

The estimate is that 850,000 homeowners were involved in forbearance. This includes those who have exhausted all options. About half of these homeowners are backed by loans from the Federal Housing Administration and the Department of Veterans Affairs.

These loans are often used more by first-time buyers, low-income borrowers and minorities, as they require lower down payments and have lower credit scores. The Department of Housing and Urban Development reports that FHA loans were used in 2019 by 37% of minority buyers.

Graphic: Forbearance winds down for vulnerable borrowers, https://graphics.reuters.com/USA-ECONOMY/FORBEARANCE/zjpqkeqrxpx/chart.png

Regulators will monitor how quickly these homeowners can be moved to other plans once their forbearance programs have ended in the coming weeks.

Mark McArdle is the assistant director for mortgage markets at Consumer Financial Protection Bureau.

In June, the CFPB approved protections to homeowners who were unable to afford their mortgage payments because of the pandemic. This was after the CFPB intensified its scrutiny of mortgage services providers. After these extra safeguards are in place, foreclosures can be resumed.

It can seem overwhelming.

Marvin Williams learned that his loan was being transferred soon after he had ended August’s forbearance.

Williams stated that Williams was unsure if Williams’ missed mortgage payments, which totaled at least $8,000 each month, would be deferred by the new company or whether he would need to repay it sooner.

Williams (63) said that he had to endure two hour waits when attempting to contact the service provider. Williams claimed that although he was informed Wednesday by the housing counselor handling his case, the payment would not be delayed. He said that he has yet to get written confirmation. “I’m trying to hope that I’m in the right place with this,” said Williams, who lives outside Rochester, New York.

PROCESS STREAMLINED

Borrowers can choose to resume payments or have the deferred loan added on at the end of the mortgage. They also have the option of having their monthly payments reduced or having their loans modified in such a way that they reduce the interest rate.

Mike Fratantoni is a senior vice-president and chief economist at the Mortgage Bankers Association. He said that the rate of forbearance exits increased in September. They are expected to reach their highest level in more than one year within the next few weeks.

Fratantoni explained that the mortgage companies have hired more people and are better prepared for handling the larger case load. It is a stark contrast to the financial crisis of a decade back, when everyone was frustrated by the speed at which the problem was resolved.

Servicers, who collect payments from borrowers, and then disburse them investors, tax authorities, and insurers, have made it easier for homeowners to move to other options.

According to the MBA, 35% of the borrowers that exited forbearance after September began to pay again and delayed missed payments until the end of the loan. Fratantoni stated that around 28% had modified their loans while 19% were unable to exit without an approved plan. Many are still trying for loan modifications.

A boom in home prices of over 30%, since the pandemic, could help. Black Knight reports that 93% of the borrowers who are in forbearance still have 10% or more equity after making 18 consecutive missed payments. In contrast, 28% borrowers had mortgages more than the value of their homes after the Great Recession.