The Coronavirus Default Wave is Coming
We talked about the coronavirus default wave last month but as this pandemic continues to spread, it is critical to stay on top of the most recent developments. Most Americans have already spent the single $1,200 stimulus check that the government began sending back in April – and many of these same Americans are still facing record-high unemployment rates, hovering around 11.1%.
The reality is that over the course of the next few months, the wave of defaults will start to roll in.
What the Timeline Looks Like
Businesses have begun the task of reopening in the past month, which has had a positive impact on a lot of Americans. However, since there still is no treatment or vaccine for COVID-19, cases have started to rise again in accordance with reopenings.
Though businesses may not shut down to the same degree that they did back in March, many will still have to reduce their services and go back to remote work mode. Layoffs, furloughs, and wage cuts are inevitable when company bottom lines are cut.
Right now, the timeline for the first large coronavirus default wave looks like this:
April – The CARES Act rolls out, including stimulus checks, mortgage foreclosure moratorium, renter eviction moratorium, and student loan forbearance
June – Businesses begin to reopen
July – $600 per week unemployment buffer ends
August – Second wave likely to hit/mortgage foreclosure moratorium ends/renter eviction moratorium ends
September – Student loan forbearance ends/school-age children go back to at least partial remote learning, making it difficult for both parents in two-parent households to continue working
October – Defaults likely start to roll in as stimulus checks are spent and much of the CARES Act support ends
There are still a few pieces of legislation that could change the timeline for the better, though.
Potential Legislation That Could Prevent the Coronavirus Default Wave
Congress is slated to vote on an aid package around the first week of August. However, the majority parties in the House and the Senate currently disagree on how far reaching the package will be. Democrats prefer a similar package to the one back in March while Republicans favor a package that caps out at $2 trillion less than the original.
While both parties currently agree on cash payments to individuals, the amount they plan to send as well as the threshold for qualification are both still up for debate. They also are still discussing moratoriums, forbearances, and continuing the boost to unemployment.
The two parties will need to work together over the coming weeks to create a package that will help Americans. However, regardless of what they pass, defaults are nearly guaranteed – they just may take longer.
How Your Lending Institution Can Prepare
Right now, we are in the calm before the storm. There will likely be a couple more months before the wave of defaults begin – but once they start, it could set off a domino effect. Preparing your organization for success now will help avoid staff overwhelm and increased overhead costs when defaults start rolling in.
Sending your cardmembers and clients credit counseling options at the earliest signs of risk can help both the organization and the individuals.
For all consumers, now is the time to learn to budget. Regardless of all other debt relief options out there, CCA’s are best at this.
For consumers facing ongoing delinquency, exploring alternative payment options is crucial – without the bias of a for-profit “advisor”. Utilize a non-profit credit counseling agency.
Peregrin can help your organization make a cost-effective strategic resource out of credit counseling for your customers with tools for making referrals to the best CCAs, to automating the payment plan proposals that may result, to managing the entire process. But time is running short to stay ahead of the curve. Now is the time to start preparing. To set up a consultation, give us a call at 1-800-231-2493 or contact us online.