Mortgage forbearances rise for second week in a row

The number of mortgages in coronavirus-related forbearance swelled at the end of the month, rising in consecutive weeks for only the third time since the number peaked in May, according to Black Knight.

Forbearances increased by 20,000 from the week before, growing to a total of 2.764 million plans as of Jan. 26. Forborne borrowers represent 5.2% of all mortgages and a combined unpaid principal balance of $551 billion, up from $548 billion week-over-week.

Forbearance totals are ticking upwards at a time when a higher share of such loans are tied to truly distressed borrowers, compared with the beginning of the pandemic, when many borrowers took the COVID forbearance only as a precautionary measure.

“Early on, about 50% of people in forbearance were continuing to make their mortgage payments,” Andy Walden, Black Knight economist and director of market research, said in an interview. “Now that we’ve gotten through December, it’s down to about 12%. So the vast majority of these homeowners in forbearance are behind on payments.”

Among the loan types, only those backed by Fannie Mae and Freddie Mac fell week-over-week, dropping by 4,000 to a total of 925,000. Government-backed mortgages — FHA and VA — rose by 9,000 to 1.149 million overall. Portfolio and private-label securitized loans — which do not fall under CARES Act protections— increased again by 15,000 to a total of 690,000.

“The key date to look at is the end of March because that’s when the first wave of forbearance plans are set to hit their 12-month expirations,” said Walden, who estimated that 600,000 to 700,000 homeowners will reach that expiration. “That’s when we’re really going to understand how that post-forbearance waterfall is functioning, what share of those borrowers are ready to re-perform through a deferral or reinstatement through a modification repayment plan and what additional programs are needed to help.”

Mortgage servicers need to pay advances of $3.4 billion in principal and interest payments and $1.2 billion due in taxes and insurance per month, according to Black Knight’s analysis. Those totals split to estimates of $1 billion and $400 million for government-sponsored enterprise loans, $1 billion and $400 million for FHA and VA, and $1.2 billion and $400 million for private labels.

While the current forbearance program expires on March 31, further extensions are expected. The Biden administration’s latest proposed $1.9 trillion stimulus plan would stretch forbearance, as well as foreclosure and eviction bans, to Sept. 30. While the extensions are necessary to help borrowers in need, servicers will also need consideration in the process, according to Cam Melchiorre, president and director of regulatory compliance at IndiSoft.

“I don’t think we should overlook the financial impact of continued deferrals and forbearance agreements on the servicer. That could take a servicer down because of lack of capital overnight and I would hope legislators are aware of it,” Melchiorre said. “Yes, the consumer is at the front of the line for help but you don’t want to create systemic problems for the industry that’s trying to support everyone.”


Forbearances hold steady as exits slow

The U.S. forbearance rate held relatively steady last week, rising one basis point to 5.38% of servicers’ portfolio volume, according to a survey from the Mortgage Bankers Association released on Monday.

The virtually unchanged rate of forbearance volume can be attributed to a stalemate between steady declines in almost every investor class and a whopping 26 basis point jump in portfolio loans and private-label securities, bringing their forbearance share to 8.94%.

Fannie Mae and Freddie Mac, on the other hand, once again claimed the smallest forbearance rate at 3.11% while Ginnie Mae loans in forbearance, which include loans backed by the Federal Housing Administration, fell 6 basis points to 7.61%.

“The good news is that the forbearance numbers for GSE loans continues to decline more consistently, as these borrowers typically have stronger credit and more stable employment,” said Mike Fratantoni, MBA’s senior vice president and chief economist.

Starting Nov. 2, the MBA began reporting the number of borrowers who continued to make their monthly payments during their forbearance period and have since exited. Since that date, the MBA has revealed that the number of up-to-date borrowers has consistently dropped, and Fratantoni noted the rate of exits from forbearance also slowed in the week prior.

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Data analytics company Black Knight noted that last week’s sluggish forbearance removals were the second lowest weekly removal volume observed to date since the company began monitoring the situation in April. 

“Removal rates have also slowed noticeably following the six-month point of forbearance plans,” said Andy Walden, director of market research for Black Knight. “This suggests that those borrowers who remain in forbearance were likely more heavily impacted by the economic downturn and thus are less likely to leave such plans before the full allowable 12-month period runs down.”  

Of the cumulative forbearance exits for the period from June 1, 2020 through Jan. 17, 2021, 28.7% represented borrowers who continued to make their monthly payments during their forbearance period – a one basis point drop, according to the MBA.

During that same time period, those who exited without a loss mitigation plan in place also fell slightly to 13.4% from 13.5% the week prior.

The MBA once again estimates there are now 2.7 million Americans in some form of forbearance, and that number has remained unchanged for nearly two months.

According to a recent paper from researchers at the business schools of Columbia University, Northwestern University, Stanford University, and the University of Southern California, by October 2020, debt forbearance allowed U.S. consumers to miss about $43 billion of debt payments. If trends continue, more than 60 million consumers would miss about $70 billion of their debt payments by the end of the first quarter of 2021.