Navigating a Time of Transition for St. Louis Mortgage Debt

A version of this opinion piece first appeared in the St. Louis Post-Dispatch on June 9 and in the St. Louis American on June 10.

Along with personal isolation during the pandemic, many St. Louisans experienced significant financial and emotional challenges. Servers, barbers, cooks, hotel staff and many others couldn’t perform their work or practice their craft while at home, yet they still had to pay their families’ bills.

As a partial response to these challenges, private lenders and the government enacted myriad financial support policies as assistance. One tool was debt relief: Student loan, mortgage, credit card and auto payments were in some instances postponed. Taken together, these policies shielded many people from the financial devastation that was feared at the outset of the crisis. The worst of the pandemic is hopefully behind us, and the economy appears stronger in many ways. However, with many forms of debt relief expiring, the financial hardship that had been postponed may be coming due.

We should be thankful that the St. Louis economy has or is almost back to pre-pandemic conditions, yet that was a time when nearly one-third of households in Missouri were asset-limited, income-constrained, employed people (or ALICE)—those families working hard yet living paycheck to paycheck and one emergency away from financial hardship. Rising prices further exacerbate this underlying fragility.

Some Background on St. Louisans’ Mortgage Debt

This year marks a critical time of transition for the consumer debt of St. Louisans, as many support policies have already expired or will expire in 2022. Based on this timing, this year may see a spike in loan defaults unless efforts to help borrowers transition back to repayment are successful.

According to data provided by the Atlanta Fed as of February 2022, at least 1,965 homes were in forbearance and at least 4,846 had a payment that was delinquent; this corresponds to 1.3% and 3.7% of the Atlanta Fed’s sample of mortgages in the St. Louis region, respectively. ZIP codes with a majority of residents of color had both a higher rate of forbearance as well as loans delinquent.

Some of the names of the municipalities and neighborhoods with the highest rates of distress are all too familiar when it comes to inequities in our region: Ferguson, Dellwood, Calverton Park, Jennings, Castle Point, Moline Acres, Mark Twain, Penrose, Greater Ville, Fountain Park and Jeff-Vander-Lou. In ZIP codes where 70% or more of homeowners were persons of color, at least 243 homes were in forbearance and at least 656 were delinquent; this equates to 3.4% and 9.1% of the sample of mortgages in these ZIP codes, respectively.

Some Ideas for Helping the Financially Vulnerable

For borrowers who fell behind on payments during the pandemic, they can request to renegotiate the terms of their loans with lenders to help them get back on track with repayment. Many of the options available to borrowers are intended to reduce the burden of payments, a relief for strained household budgets.

Delivering loan modification support often requires overcoming a significant hurdle: Borrowers must reach out to and work with their loan servicer to arrange new repayment plans. Placing the onus on the borrower can present a challenge.

The same coalition of organizations that helped borrowers stay afloat during the worst of the pandemic (government, private sector, consumer advocacy groups and other organizations serving low- to moderate-income communities) could work together to reach consumers in need who are unaware of their options. In the longer term, addressing the housing affordability crisis could include increasing the supply of affordable housing in the region.

Navigating the Transition

Failure to reach our distressed neighbors may mean loss of housing and wealth (in the form of home equity), as well as declining neighborhood property values. Locally, this means falling further behind on equity in measures of financial empowerment in the region. The greater likelihood of default among homeowners of color stands to echo the severe loss in housing wealth for Black and Hispanic homeowners during the collapse of the housing market and subsequent Great Recession from 2007 to 2009.

Successfully navigating this critical time of transition, however, has the potential to restore the financial wholeness of St. Louisans and support equitable economic growth. Moving beyond stabilizing these borrowers, there’s an opportunity to reimagine how to build financial resilience more broadly among St. Louisans, perhaps through greater financial capacity to accumulate emergency savings. Having such savings not only makes families more resilient in the face of future economic downturns, but also lets them invest in their futures: brighter, healthier futures worth striving for.

The views expressed are those of the author and do not necessarily reflect official positions of the Federal Reserve Bank of St. Louis or the Federal Reserve System.