U.S. lenders say they expect most borrowers who were given a temporary reprieve on loans due to income loss from the impact of COVID-19 will resume payments soon.
The Financial Times reported 40 percent of customers granted forbearance continued to make full payments on their loans.
These short-termed agreements will end later this month and bank executives say many clients have not been as hard hit by the pandemic as they feared.
Banks estimate between 4 and 22 percent of borrowers received up to 90-day payment holidays as the economic impact of the coronavirus pandemic threatened their livelihoods, according to an analysis by Autonomous based on public disclosures, FT reported.
“We would expect a meaningful portion of that [forbearance] hopefully not to be needed any more,” Brendan Coughlin, head of consumer lending at Citizens Bank, told the newspaper.
He said 7 percent of small business and consumer loans had forbearance agreements at the end of March. Ten percent of Citizens’ clients who have their paychecks paid into the bank’s current accounts and took the payments holidays saw their income disrupted since the pandemic began, Coughlin added.
Among the 10 percent includes people whose incomes were supplanted with jobless benefits, he said.
In addition to state unemployment benefits, laid off workers received an extra $600 a week from the federal CARES Act, which expires in July.
In Citizens’ mortgage business, about 25 percent of those who applied for forbearance continued to make loan payments, FT reported.
“We will try to have conversations with those customers around the pros and cons,” Coughlin told the paper. “If they truly don’t need it, it may actually be better for them to get back on a payment scheme and start paying down their interest so they don’t have to push it all out to the end of the loan.”
The fact that the numbers of customers who applied for forbearance were far lower than those expected also made bank executives more optimistic about repayment.
Synchrony recently said 75 percent of its customers who initially took payment holidays have already resumed payments. American Express told FT that it is expected to close its forbearance program because demand has dramatically slowed, the newspaper reported.
In addition, Bank of America, Wells Fargo and US Bank have revealed as many as 40 percent of those who were granted forbearance continued making payments.
“The most interesting thing to me has been that many people that asked for and received forbearance have continued to make their scheduled payments,” Jason Goldberg, analyst at Barclays, told the newspaper. “Still, many of these initiatives were designed for a V-shaped recovery. That’s why it’s important this reopening continues and the employment picture improves quickly. ”