From the U.S. Government Accountability Office, www.gao.gov Transcript for: Did Housing Protections Under the CARES Act Work? Description: COVID-19 caused significant turmoil in the U.S. economy, leaving many citizens without stable incomes. The CARES Act, which Congress passed in March of 2020, sought to provide homeowners with some relief through measures like mortgage forbearance and moratoriums on foreclosures. We talk with GAO's John Pendleton about a new report out on whether housing protections during COVID-19 worked. Related GAO Work: GAO-21-554, COVID-19 Housing Protections: Mortgage Forbearance and Other Federal Efforts Have Reduced Default and Foreclosure Risks Released: July 2021 [Intro music:] [John Pendleton:] It's pretty clear that the forbearance option and foreclosure moratorium gave millions of borrowers needed breathing room to make it through the pandemic. [Holly Hobbs:] Hi and welcome to GAO's Watchdog Report. Your source for news and information from the U.S. Government Accountability Office, celebrating one hundred years of fact-based, nonpartisan government oversight. I'm Holly Hobbs. COVID-19 caused significant turmoil in the U.S. economy, leaving many citizens without stable incomes. As a result, millions of homeowners have experienced ongoing challenges making mortgage payments, risking default or foreclosure. The CARES Act, which Congress passed in March of 2020, sought to provide homeowners with some relief through measures like mortgage forbearance and a moratorium on foreclosures. Today, we'll talk with John Pendleton, a director in our Financial Markets and Community Investment team, who has a new report out about whether housing protections during COVID-19 worked. Thank you for joining us, John! [John Pendleton:] And thanks for having me, Holly. [Holly Hobbs:] So, John, did it work? Did the protections under the CARES Act save people from losing their homes during COVID? [John Pendleton:] Yes, it's pretty clear that the forbearance and foreclosure efforts helped people stay in their homes during the pandemic. 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. [Holly Hobbs:] And do we know what types of loans or borrowers were more likely to utilize the forbearance option? [John Pendleton:] The provisions covered folks who have federally backed mortgages, and we saw big differences depending on the type of loan. For example, the Federal Housing Administration, or FHA, had forbearances in place for nearly 15 percent of their loans as of last May, which was much higher than the overall averages. And when you step back and look across all the types of federally backed loans, we found that Black and Hispanic homeowners were in forbearance at about twice the rate of white homeowners, and that provided some additional evidence that the pandemic had deeply affected minority populations. [Holly Hobbs:] So housing protections under the CARES Act didn't apply to all mortgages. Which loans qualified? And were there any limits to how long someone could use the forbearance period? [John Pendleton:] That depended a little bit based on where you got your loan. But there are a couple of key things to note here. Like I said, to be eligible, your loan had to be federally backed. But this is about 80 percent of all mortgages, and it includes programs intended to help veterans, rural populations, or others who might have needed lower down payments to qualify, that kind of thing. But if you had a federally backed mortgage, you could typically get forbearance for a year, or in some cases, the protections could last up to 18 months. [Holly Hobbs:] So what did the federal government do to promote awareness of mortgage forbearance? [John Pendleton:] There were some hiccups early on. But as time went on, the government agencies and mortgage servicers--these are the folks that hold your loan and process your payments--worked together to try to educate distressed borrowers about what their options were. Early on, it was clear that many borrowers didn't understand the provisions, what they were entitled to, and not all services were giving good information, frankly. Some borrowers were afraid to contact their mortgage servicers. But we looked at the data to try to see how many folks might have fallen through the cracks here. And the way we did it is we looked at how many borrowers were two or more months behind, but not in forbearance. And we found that less than 1 percent, 6/10ths of 1 percent, as a matter of fact, fell into that category. So it looks like most folks that were entitled to this and needed it got help with it. [Music:] [Holly Hobbs:] So it sounds like housing protections under the CARES Act helped a lot of homeowners who were struggling to make mortgage payments because of COVID-19. But, that while the economy is recovering, there might still be a lot of borrowers using forbearance to make ends meet. John, at some point, the moratorium is going to end. What happens then? [John Pendleton:] That's the right question, Holly. Clearly there's a backlog of foreclosures that will hit the system as the moratorium ends. And for those in forbearance, it's important to remember that the debt has not been forgiven. The borrowers will still need to pay, somehow what they owe. In February of this year, we found that the average loan and forbearance had 8 missed payments and the borrowers were over $8,000 behind, and probably higher now. The key going forward will be borrowers and servicers working together to find a way to get things back on track. You can add a little on to the monthly payment or you can tack the missed payments with agreement from your servicer onto the end of the loan period. But this all has to be worked out. [Holly Hobbs:] And last question, what's the bottom line of this report? [John Pendleton:] Federal actions early in the pandemic staved off the wave of foreclosures that were feared when the economy dipped. 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. [Holly Hobbs:] That was John Pendleton talking about GAO's recent review of COVID-related housing protections for homeowners. Thank you for your time, John. [John Pendleton:] Thank you, Holly. [Holly Hobbs:] And thank you for listening to the Watchdog report. To hear more podcasts, subscribe to us on Apple podcast, Stitcher, Google podcasts, and more, and make sure you leave a rating, a review to let others know about the work we're doing. For more from the congressional watchdog, the U.S. Government Accountability Office, visit us at GAO.gov.