Posted on May 5th, 2020
The mortgage forbearance rate worsened yet again compared to last week, though as expected the increase has slowed as the pool of borrowers grows larger.
As of April 26th, some 3.8 million homeowners were in forbearance plans, per the Mortgage Bankers Association’s (MBA’s) most recent Forbearance and Call Volume Survey.
The forbearance rate increased from 6.99% to 7.54%, a mere eight percent rise from a week earlier, but still more bad news for loan servicers.
And I should note that we’re about to begin a new month, so those on the fence last month could request forbearance this week, creating a new surge.
Forbearance Rate Tops 10% for FHA/VA Loans
- Ginnie-backed loans have a forbearance rate of 10.45%
- Fannie/Freddie loans have forbearance rate of 5.85%
- Private-label securities and portfolio loans have rate of 8.30%
- Depository banks have rate of 8.41%, independent mortgage bank (IMB) servicers have rate of 7.13%
In terms of loan type, government-backed home loans continue to fare worst, with Ginnie Mae mortgages (FHA loans and VA loans) seeing forbearance rates climb to 10.45% from 9.73%.
Meanwhile, the Fannie Mae and Freddie Mac forbearance rate rose from 5.46% to 5.85%.
Other mortgages, such as private-label securities and portfolio loans, which can include jumbo loans, increased from 7.52% to 8.30%.
With regard to institution type, depository banks saw their forbearance rate go up from 7.87% to 8.41%, and independent mortgage bank (IMB) servicers saw their rate move from 6.52% to 7.13%.
It’ll be interesting to see what happens in the second week of May once the next wave of borrowers request forbearance.
It seems we’ve kind of plateaued for the month of April, but a new month means new layoffs, business closures, losses of income, etc.
And regardless, the numbers are already way above what was originally forecast, perhaps because the forbearance offered via the CARES Act is very attractive to homeowners.
MBA Senior Vice President and Chief Economist Mike Fratantoni noted that the millions of additional Americans filing for unemployment throughout the week will likely make matters worse, “particularly as new mortgage payments come due in May.”
$500 for Each Mortgage in Forbearance?
- More relief for mortgage servicers may be on the way
- Via a $500 credit paid by Fannie/Freddie for each loan in forbearance
- Unclear if the same would be extended to Ginnie Mae servicers
- Or if it’s enough to offset the massive losses some servicers are experiencing
That brings us to how loan servicers will fare in all of this, especially nonbanks that might not have as much access to capital.
We know that Fannie Mae and Freddie Mac have agreed to buy mortgage loans in forbearance, and only require servicers to advance the first four months of missed payments.
But those enormous costs could still put enough strain on some servicers to wipe them out.
To further ease the situation, it has been reported that Fannie Mae and Freddie Mac will pay servicers $500 per loan in forbearance to ease the pain.
This is according to Jack Navarro, president of Shellpoint Mortgage Servicing, who spoke about the developing situation during a Tuesday morning conference call, per Inside Mortgage Finance.
The so-called “$500 deferment fee is scheduled to take effect on July 1,” assuming it’s approved by the Federal Housing Finance Agency (FHFA).
That fee would obviously offset some of the cost associated with the forbearance advances, at least partially.
But if the forbearance rate keeps climbing higher in May, it still might prove to be too little too late.
Navarro also spoke to what happens after forbearance, saying the plan is “to allow borrowers to very quickly go from the forbearance process to a current loan with payments deferred to the end of the mortgage.”
That backs up the Fannie/Freddie partial claim I spoke about last week, which would make it relatively painless for borrowers who regain their job/income to continue making mortgage payments and put this all behind them.
About the Author: Colin Robertson
Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.