A key sign of financial trouble in Louisiana: late mortgage payments
Louisiana ranks second in the nation in the percentage of homeowners who are late on their mortgage payments.
More than 11% of home mortgages in the state were past-due on payments or in delinquency as of June, which is higher than the 7.6% national average, according to data from Black Knight, a Florida-based publicly traded technology business with access to loan-level data from some of the largest mortgage service companies.
There are 1.87 million homeowners across the country who are more than 90 days past-due as of June, which is the highest level since early 2011. Past-due and delinquency rates are highest in Mississippi, at 12.5% of mortgages, followed by Louisiana, then New York at 10.9%; New Jersey, 10.6%; and Hawaii, 10.3%.
Rates are 10.6% in Baton Rouge, 11% in Lafayette and 13% in New Orleans.
Fortunately, the majority of homeowners have obtained forbearance from lenders that allowed them to delay payments after the coronavirus pandemic exploded in March and people were furloughed or put out of work by stay-at-home orders and business closures imposed to slow the spread of the disease.
Still, some mortgages are in delinquency on the path to foreclosure, according to the Black Knight data. So far, though, fewer than 1% of loans in each area market were actually in foreclosure as of June, just 0.6% in Baton Rouge and 0.5% in both Lafayette and New Orleans, with homeowner protections imposed by Congress on federally-backed home loans.
The health of home mortgages is one aspect economists track closely in forecasting. If delinquencies were to turn into future foreclosures, the consequences can be staggering.
"It's a leading indicator, it gives you a sense of where things are heading," Gary Wagner, professor of economics at the University of Louisiana at Lafayette, said of the past-due and delinquency rates and potential for future foreclosures. "That's because it's the major source of wealth (as a big asset) for most households. And it's a very serious sign because in general people are taking every step to paying their mortgage before discretionary spending," he said.
"Almost 16% of wages in this country right now are coming from unemployment benefits. That's the highest it's ever been by a wide margin," Wagner said. "There are big gaps between people. There are some who have zero opportunity for generating income and some who are not affected at all."
If the home mortgage loan portfolio in the state continues on its current trajectory and foreclosures do resume, it could impact the property value of whole neighborhoods, even those who are current on mortgages, he said. The ripple effect would be noticeable.
"It would be like a significant decline in the stock market, except it's going to more broadly affect people," he said.
"The best thing that could help is containment of the virus and we go to operating more normally," Wagner said.
Typically, foreclosure starts after homeowners are 120 days past-due on payments. Congress placed a 60-day moratorium against lenders starting or proceeding with foreclosures in mid-March that's been extended to Aug. 31. It also instituted 180-day forbearance programs, with homeowners experiencing coronavirus-related financial difficulties able to request another 180-day extension of delayed payments on federally-backed mortgages. Interest still accrues on the home loan, but fees and penalties are waived. Many lenders started with an initial 90-day forbearance period.
To keep whole or partial mortgage payments going, struggling homeowners had said in previous interviews that they were cobbling together savings, federal relief funds they had received and unemployment checks to prevent being hit with a huge lump sum bill, which can be avoided if lenders are willing to alter the terms of the mortgages that are in forbearance.
In most cases, Americans were not prepared with significant savings to rely on during the crisis. Even those with the recommended two months or more of emergency funds have spent it.
"We have a pretty low savings rate but this is like how you wouldn't shore up a river for a 10,000-year flood; you try to insure against things that are likely," Wagner said.
With a pandemic hitting, the U.S. economy shrank more than 33% in the second quarter, a level not seen since the Great Depression and by far the largest drop since government record-keeping began in 1947. More than 30 million Americans are receiving unemployment benefits, with about one in four in the Louisiana workforce on unemployment.
Congress is debating additional relief, including a full or partial extension of an expired $600 in weekly checks to the unemployed, that is critical to many Americans' financial stability and survival.
Some homeowners were able to catch up or make partial mortgage payments as the state's economy entered a phased restart recently and some went back to work, but many are still simply unable to pay.
"Not everybody who is in forbearance is skipping their payments, but every month that has gone by since forbearance the percentage of people paying has decreased," said Kenny Hodges, CEO of Baton Rouge-based Assurance Financial, the fifth-largest home mortgage business in Louisiana, based on rankings from McLean, Va.-based ComplianceTech's LendingPatterns.com, which pulls millions of federal home mortgage disclosure act records into one place for analysis.
Assurance Financial originated more than 2,800 loans in Louisiana in 2019, but it has thousands more as part of its portfolio. If loans in forbearance were taken out of the Assurance Financial portfolio, only about 5.3% of the loans left are past-due. About 6% of the servicing portfolio is in forbearance, meaning the overall past-due rate tops 11%.
The percentage of those in forbearance slipping into delinquency has increased from 15% in the first month, 25% to 30% in the second month and nearly 50% in the third month, Hodges said.
"They have the opportunity to bring it current when the forbearance period ends. The sooner that we can get money into the economy the better it will be for housing," he said. "When the forbearance period ends and they can't pay, now you don't have forbearance, you're delinquent now and it does start affecting your credit. While they are in forbearance there are no dings to their credit score."
At Baton Rouge-based GMFS, just shy of 10% of its loans are past-due or delinquent.
During the 2016 flood that hit uninsured homeowners hard, GMFS offered forbearance to those impacted by the natural disaster as required but this situation is different, said Tee Brown, CEO of GMFS, which originated more than 6,300 loans in Louisiana last year.
"It's the most (forbearances) we've ever seen. We had 2,000 homeowners (in forbearance) then and just under 4,000 today. What's unique about this is that unlike a typical forbearance, we're seeing between 25% to 30% of individuals who are in forbearance still continuing to make their mortgage payments," Brown said, "which was surprising."
"Continue to pay what you can, even if it's not a full payment," he said.
GMFS hasn't seen more deterioration of its loans as the coronavirus pandemic has stretched on, but its leadership did notice that it's not necessarily unemployment that's a driving factor.
"The vast majority of folks are in forbearance not because they are unemployed but their business has been impacted the longer we stay in Phase 2" of the reopening that still imposes capacity and other restrictions on many businesses, Brown said.
Brown said homeowners should continue communicating regularly with their mortgage servicer and ask what their options are during the entire process until they are out of forbearance and back to current.
Some options are available to negotiate with lenders: A repayment plan could allow past-due payments to be spread out over the term of the loan by adding them to the current mortgage balance. A loan extension could add the past-due payments to the back end of the loan.
Foreclosures are the last resort for a lender to get its money back. That not only hurts the credit score of the homeowner, but the lender doesn't often recoup the full amount of the loan when the home is sold at auction.
Parish sheriff sales data in Baton Rouge, New Orleans and Lafayette show dozens of foreclosures were stopped in recent months, which may be because a lender and homeowner came to a different agreement or the state eviction moratorium stopped the sale.
But there are dozens more foreclosures scheduled in August, and not just for homes under $150,000 but also upwards of $300,000, records show.
Local social services nonprofits, such as Southeast Louisiana Legal Services, are "preparing for a deluge of cases" after the moratorium on federally-backed loan programs expire at the end of August.
"We expect a second wave of foreclosures when the CARES Act forbearances expire," said Anthony Sartorio, attorney who oversees the organization's home mortgage foreclosure prevention team.