Maurice Jourdain-Earl of ComplianceTech on CARES Act Relief and Racial Disparities in Mortgage Forbearance
MBA NewsLink talked with Maurice Jourdain-Earl, Managing Director of ComplianceTech, McLean, Va., a provider of software and services to enable fair and responsible lending compliance. He has decades of experience in the government and municipal bond market, mortgage-backed securities and in the primary and secondary mortgage markets. Prior to founding ComplianceTech, he worked for IDS Investment Services, Continental Bank, PMI Securities Co., and Citicorp Mortgage.
Jourdain-Earl is a noted speaker and writer on HMDA and fair lending practices and has appeared frequently at MBA events. He is a graduate of DePaul University. He sits on MBA’s member-led Diversity & Inclusion Advisory Committee.
MBA NEWSLINK: You recently published a report, available here, about Section 4022 of the CARES Act, which deals with forbearance moratoriums. Can you tell us more?
MAURICE JOURDAIN-EARL: This report discusses three issues. One, how COVID-19 is hitting Black Americans harder. Two, if the COVID-19 forbearance moratorium is not effectively managed, how it will worsen conditions for Black homeownership. Three, what can we do to make sure that all homeowners with a federally backed mortgage in need mortgage relief due to the coronavirus pandemic are aware of Section 4022?
Section 4022 of the CARES Act gives American homeowners the right to request a forbearance to stay in their homes and avoid foreclosure. This section gives a borrower with a federally backed mortgage loan who is experiencing financial hardship, due directly or indirectly to the COVID–19 emergency, the right to request a forbearance from the loan’s servicer, regardless of delinquency status.
Forbearance is a temporary postponement of mortgage payments. It is a form of repayment relief granted in lieu of forcing a property into foreclosure. Forbearance does not erase what is owed. The borrower has to repay any missed or reduced payments of principal and interest in the future. The missed payments can be paid at the end of the forbearance period, tacked on at the end of the mortgage term, or the loan can be refinanced or modified.
NEWSLINK: What are federally backed loans?
JOURDAIN-EARL: Federally backed mortgage loans include any first or subordinate lien on residential real property designed for 1-4 families that is insured by the Federal Housing Administration, guaranteed or insured by the Department of Veterans Affairs, guaranteed or insured by the Department of Agriculture and loans purchased or securitized by Fannie Mae and Freddie Mac.
NEWSLINK: In your report, you said Section 4022 will have a disparate impact on Black Americans, why do you say that?
JOURDAIN-EARL: Section 4022 is neutral, but the report points out how black Americans will not have equitable access to CARES Act mortgage relief because of the underlying racial disparity in homeownership rates. White Americans have a 73.7% homeownership rate while Black Americans have a 44% homeownership rate. In addition, the report discusses how over the last 13 years, Black Americans only have 3.3 million federally backed mortgage loans compared to 36 million for white Americans. This disparity follows the difference in homeownership rates by race. Do the math.
NEWSLINK: Tell us more about the forbearance process.
JOURDAIN-EARL: The process was supposed to be easy. Any homeowner with a federally backed mortgage loan experiencing a financial hardship directly or indirectly due to the coronavirus, is supposed to be able to just call their servicer, provide no proof of hardship, not be subjected to a ding on their credit report and get delayed mortgage payments for up to 12 months, just by asking.
NEWSLINK: The process sounds straightforward; what’s so difficult about it?
JOURDAIN-EARL: There is confusion, because apparently without notice, Congress dropped this on servicers. As a consequence, servicers were caught off guard. It hit servicers hard, especially since servicers are expected to advance principal and interest payments to investors on delinquent loans. I am sure it put a strain on servicer’s warehouse lines.
Much of the confusion also stemmed from uninformed consumers and servicers, both large and small. Both groups were completely unaware of the provisions of Section 4022 of the law. Every Black person I have spoken with knew nothing about this provision. However, to be honest none of the white people I mentioned it to knew anything about it either.
For example, the report discusses how some Black homeowners, if offered a forbearance at all, it was with less favorable terms. Often it was a 90-day forbearance, with deferred payments due in full, at the end of 90 days. When knowledgeable homeowners requested a Section 4022 forbearance, many servicers said, “we do not offer a program like that.” Finally, there was also confusion about when delayed mortgage payments had to be repaid. Eventually, the Enterprises and the government agencies involved provided guidance to servicers to inform them of their responsibility under the law.
NEWSLINK: There are recent projections that forbearances are shrinking? What is your opinion about that?
JOURDAIN-EARL: It’s hard for me to fathom forbearances are shrinking when 1.3 million more Americans recently filed for unemployment. Recent mortgage news sources say that 4.1 million American homeowners are still in forbearance plans offered by banks and federal agencies. Many economists say that number is starting to shrink as more workers are called back to work. The projection that more workers are being called back to work is inconsistent with the latest unemployment numbers. If it’s true it makes me question first, who was furloughed or fired and second, who’s being called back to work?
NEWSLINK: CNN recently reported that Anthony Fauci (director of the National Institute of Allergy and Infectious Diseases) said institutional racism contributes to the disproportional impact the pandemic has had on the Black community. Your thoughts?
JOURDAIN-EARL: COVID-19 is hitting Black Americans harder, both health wise and financially. In the mortgage arena, financial hardship is best measured by mortgage payment status.
For example, according to the U.S. Census Bureau Household Pulse Survey for the 10-week period between April 25 – July 7, it reports white homeowners on average made mortgage payments 86.7% of the time, missed it 7.41% and had a mortgage deferral 4.6% of the time. By comparison, the pulse survey reported that Black homeowners made mortgage payments 73% of the time, missed it 18.7% and had a mortgage deferral 7.3% of the time. Black homeowners missed mortgage payments 2.5 times more than whites but had only slightly higher mortgage deferrals. The data suggests there are more Black borrowers not paying their mortgages than are making forbearance arrangements with their servicers.
The different mortgage payment status could be COVID-19 related, but it can just as easily be because Black Americans have been economically disadvantaged for centuries. It shows up with income disparities, wealth disparities, access to credit, health care and education, etc. COVID-19 has exposed and intensified deep structural inequalities that exist in our society. It is making the prospect for black American homeownership extra hard, ergo the title of the report, The COVID-19 Forbearance Moratorium Enlarges the Wound Caused by the Lack of Homeownership in Black America.
NEWSLINK: What can the mortgage industry do to make sure Section 4022 of the Cares Act is more equitably executed?
It is all about execution. To date, there has been little, if any public announcements about this provision. PPP loans have taken all of the oxygen out of the CARES Act. The government and the mortgage industry can intentionally reach out to Black Americans through various channels to spread awareness of Section 4022 and the process to apply. Additionally, the mortgage industry should inform all necessary employees about Section 4022 and create efficient processes and procedures to implement this provision.
My concern is that Black American homeowners will not be aware of Section 4022, and thus be more subject to foreclosures. They will not know to ask and press servicers for mortgage relief under this program. I am also concerned whether mortgage servicers will offer Section 4022 forbearances as a loss mitigation option to all homeowners who qualify.
NEWSLINK: You’ve called it a “perfect storm.”
JOURDAIN-EARL: I said in the report that a perfect storm is brewing. But I take that back. This storm is already in full gear. COVID-19 is adversely affecting Black Americans. We are contracting the virus more, dying more, and experiencing more financial hardships. Black Americans are disproportionately renters, and the CARES Act only provides 90 days of eviction protection for renters, and only if the landlord participates in a 90-day forbearance program for multifamily rentals described in Section 4023.
NEWSLINK: What’s the takeaway?
JOURDAIN-EARL: The COVID-19 forbearance program can be of tremendous benefit. Imagine not having to make a mortgage payment for up to 12 months. This can make a big difference in anybody’s financial affairs. Recipients can rearrange their financial condition and better provide for their families during these hard times. It is critical that this forbearance moratorium be properly executed.
I am just trying to spread the word and make all eligible homeowners experiencing financial hardship due to the coronavirus, aware of this program so, they can receive much-needed mortgage relief. In addition, I want mortgage servicers to train their staff about Section 4022, so they can follow the law and offer it to all borrowers with federally backed mortgages.
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