COVID-19 Reveals Disparities in Household Financial Stress

September 29, 2020

Mother having breakfast and doing bills with her baby in her lap

A large share of households across the western United States suffered employment income losses during the pandemic. We looked at the Census Bureau’s latest available Household Pulse Survey, conducted in late July, to get a better picture of what that means for our District. Here’s what we found.

Overview of households in the West

  • More than 43% of households lost some amount of employment income since mid-March, slightly exceeding the share affected elsewhere.
  • Households in states with a heavy reliance on tourism and/or prolonged shelter-in-place measures—such as Nevada, Hawaii, and California—tended to report greater impacts.
  • In Utah and Idaho, where virus transmission was initially low and states reopened earlier, a smaller proportion of households reported a loss of employment income between mid-March and mid-July.

Income losses contributed to housing insecurity

The Census Bureau’s survey also asked mortgage borrowers and renters if they made their June housing payment on time and how confident they were in their ability to make next month’s (August) payment. Overall, 11% of the District’s surveyed mortgage borrowers and 23% of its renters expressed some level of housing insecurity in July.

In Nevada and Hawaii, homeowners and renters were among the most likely to report late or deferred payments in the prior month (more than 10% of respondents). Households in these states also tended to have lower confidence in their ability to make future mortgage or rental payments.

Racial and income divide of COVID-19 compounds inequities

Previous or expected loss of employment income and housing insecurity were more commonly reported among non-white respondents or those who identify as Hispanic.

Households with lower incomes in 2019 were more likely to have lost income, expect a job loss in the coming four weeks, or lack confidence about their ability make mortgage or rent payments.

Forbearance high for borrowers with lower credit scores

According to Transunion, the share of consumer loan accounts “in hardship”—meaning not technically delinquent but subject to forbearance, deferral, or frozen status–tended to be higher among subprime and near prime borrowers than super prime or prime plus borrowers. Among mortgages, the rate of “hardship” among FHA-backed loans—made disproportionately to near prime and subprime borrowers—was 12.9%, up from 1.2% in July 2019, and more than twice the rate of Fannie/Freddie loans.

Banking industry impacts

District banks are exposed to household sector stress most directly through consumer, 1-4 family, and multifamily loan portfolios. At midyear, consumer and 1-4 family loan concentrations (and severe delinquencies) tended to be higher at large banks nationally than at community banks in the District. Mid-sized District banks often reported very heavy exposures to single-family mortgages.

District banks of all sizes typically reported multifamily mortgage exposures well above the national average, leaving them vulnerable to stress among renters.

Forbearance, in combination with fiscal and monetary stimulus, largely suppressed loan delinquencies and losses through June 2020, notwithstanding a surge in unemployment. However, borrower credit performance may slip as stimulus and forbearance efforts fade.

For more details and implications for banking, visit the full First Glance 12L 2Q20 report.

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The views expressed here do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco or of the Board of Governors of the Federal Reserve System.