Homeowners, wary of inflation, lack loss mitigation know-how

An overwhelming majority of homeowners in a new survey say they're worried inflation will impact their ability to pay their mortgage, and admit a significant lack of awareness about loss mitigation options.

Among borrowers surveyed by mortgage technology firm Brace, 85% shared concern about inflation, and 46% said cost of living increases have affected their ability to make home loan payments in the last six months. More troubling, very few homeowners could identify what triggers a foreclosure, suggesting an opportunity for servicers to boost education efforts.

"Our survey concluded that not a single participant could prove they understood all the benefits and consequences of loss mitigation workouts offered by mortgage investors," the report said.

Brace's annual survey, published Wednesday, analyzed responses from 316 borrowers nationwide between ages 25 and 74. Young and minority homeowners expressed more anxiety than others over their ability to pay, but also a larger appetite for help from servicers.

Young homeowners are especially anxious, with 71% between ages 25 to 34 stating they were concerned about the cost of living weighing on home loan payments. A survey-high 80% of minorities in that age range shared the same worry. Meanwhile, just 38% of borrowers between ages 45 and 74 said they were uneasy about the cost of living impact.

Across the board, 78% of respondents said they were wary of rising interest rates' impact on their ability to pay their home loans, despite just 2% indicating they had adjustable rate mortgages.

"This could be another indicator that homeowners must be more educated about how interest rates impact their finances," the survey said. 

Over a third of respondents, or 38%, didn't know when missed payments would trigger a foreclosure, and just 10% of those who had previously defaulted could describe the 120-day delinquency trigger. Only 5% of those surveyed who had never defaulted could correctly identify the steps leading to a foreclosure, Brace said.

Just over half, or 59% of homeowners, knew about the forbearance grace period, while 27% were aware of loan modifications that would allow them to catch up on missed payments. The response rate, while uninspiring, comes at a time when delinquencies continue a nearly 2-year slide.

"These responses perhaps show the awareness built around forbearances during COVID but a lack of knowledge about other relief options," the report said.

Regulators have shown an interest in closing that knowledge gap, recently announcing for example a pandemic-era expanded deferral program would become mandatory in certain situations beginning Oct. 1.

Homeowners want more education, with 69% acknowledging interest in financial strategies from their servicer, including 79% of minority respondents. Just over half of homeowners surveyed said they would turn to their lender or servicer for financial strategies before looking to families or friends.

Young borrowers still prefer digital solutions over picking up the phone, Brace found, while 45% of respondents ages 45 to 54 said they would use the web before calling a company.

"It shows that digital adoption is becoming more prevalent among older age groups and holding expectantly firm with younger ones," the report said.

Just 4% meanwhile would turn to local housing authorities for mortgage aid. That sits against distressing figures including 15% of respondents who said they would turn to credit cards and 5% to payday loans to cover home loan costs, according to Brace.