Forbearance exits more like a drip than a wave last week

The MBA estimates 2.6 million homeowners are still in some form of forbearance

The total number of mortgages in forbearance fell three basis points in the last week of February, down to 5.2% on the back of a slight increase in forbearance exits, the Mortgage Bankers Association reported on Monday.

At the current rate, the trade group estimates 2.6 million homeowners are still in some form of forbearance. Of those who are, more than 12% were current at the end of February, down somewhat from roughly 14% at the end of January.

Regardless, an increase in exits is a positive sign that forbearance will naturally end for many borrowers given continued coverage extensions, said Mike Fratantoni, MBA’s senior vice president and chief economist.

“The improving economy, the soon-to-be passed stimulus package, and the many homeowners in forbearance reaching the 12-month mark of their plan could all influence the overall forbearance share in the coming months,” Fratantoni said.

In the last week of February, Fannie Mae and Freddie Mac once again boasted the smallest share with servicers’ portfolios dropping three basis points to 2.94%.

From forbearance to post-forbearance: How to make the process effective

To accommodate the large volume of loans still in forbearance, mortgage servicers must have functional, flexible and effective forbearance processes in place. Here are some actionable steps to create that process.

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Ginnie Mae loans, including those primarily backed by the FHA, also managed to fall seven basis points to 7.28%. Inversely, as many of the loans that are bought out of the Ginnie Mae pools are put into private labeled securities (PLS), portfolio and PLS forbearance volumes gained two basis points to 9.05%.

Overall, the rate of improvement in active forbearance plans continues to be sluggish. Data released on Monday by Black Knight found the monthly rate of decline in forbearances is holding steady at -2%. And just 160,000 forbearance plans are scheduled to expire at the end of February, providing limited opportunity for significant declines in forbearance volumes in coming week.

Black Knight also reported that the number of borrowers rolling from 30-to-60 and 60-to-90 days delinquent were up 31% and 75% year-over-year, respectively, as borrowers may be rolling to later stages at higher rates because of participation in forbearance plans.

Of the cumulative forbearance exits for the period from June 1, 2020, through Feb. 28, 2021, 27.7% represented borrowers who continued to make their monthly payments during their forbearance period. On the flipside, close to 14% of borrowers did not make all of their monthly payments and exited forbearance without a loss mitigation plan in place.

But Fratantoni said rising rates are a harbinger for a more stable economy, and with that stability comes an increase in exits, though only if the right policy is enacted.

“Job growth picked up sharply in February and the unemployment rate decreased, but there are still almost 10 million people unemployed, with 4.1 million among the long-term unemployed – up 125,000 from January,” Fratantoni said. “The passage of the American Rescue Plan provides needed support for homeowners who are continuing to struggle during these challenging times.”

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