Forbearance numbers fall, delinquency rates rise

1.7 million homeowners still in forbearance plans

Once again, servicers’ forbearance portfolio volume fell — this time dipping seven basis points to 3.40% for the week ending Aug. 1, according to a survey from the Mortgage Bankers Association. 

Per MBA’s estimate, 1.7 million homeowners are still in forbearance plans.

The share of Fannie Mae and Freddie Mac loans in forbearance also decreased, falling five basis points to 1.74%, and Ginnie Mae loans decreased 12 basis points to 4.18%. The share for portfolio loans and private-label securities (PLS), which increased six basis points last week, fell seven basis points in the most recent study to 7.37%.

The percentage of loans in forbearance for independent mortgage bank (IMB) servicers decreased four basis points to 3.63%, and the percentage of loans in forbearance for depository servicers decreased 10 basis points to 3.49%.

This is the biggest decrease in the share of loans in forbearance in three weeks, noted Mike Fratantoni, MBA senior vice president and chief economist.

How can servicers best help borrowers as they exit forbearance?

Servicers should be communicating with borrowers early, ensuring to do so in a compliant manner by staying abreast of the current and proposed regulations, CFPB or otherwise. Alert them that they do have the option to sell their house now while in forbearance if they wish as a forbearance exit option.

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“Of the 1.7 million homeowners remaining in forbearance, 13% are current on their payments as of August 1, and of those who exited forbearance last week, more than 10.5% were current,” Fratantoni said. “Forbearance has surely provided both insurance and assurance for many of these homeowners who worried about ongoing hardships, and it is positive to see so many continue to be able to make their payments while in forbearance.”

Fratanoni added that delinquency rates have increased slightly for borrowers who have exited forbearance and began repayment plans, deferral plans, or modifications over the course of the pandemic.

“However, July’s strong job market report provides evidence of a rebounding economy, which should provide further support for homeowners exiting forbearance in the months ahead,” he said.

The Department of Housing and Urban Development (HUD), Department of Agriculture (USDA), and Department of Veterans Affairs (VA) announced on July 23 that they will give homeowners options to reduce their monthly principal and interest by lengthening the term of the mortgage, bringing the agencies “closer in alignment with options for homeowners with mortgages backed by Fannie Mae and Freddie Mac,” a White House press release said.

For borrowers who can resume paying their mortgage, federal agencies will allow them to move their payments to the end of their mortgage. But the White House said some homeowners will need “deeper assistance” to become current and keep their homes.

The enrollment period for forbearance will conclude at the end of September.

By stage, 9.7% of total loans in forbearance are in the initial plan stage, while 82.9% are in an extension. The remaining 7.4% are re-entries.

Of the cumulative exits for the period from June 1, 2020, through August 1, 2021, 28.1% resulted in loan deferrals or partial claims. Another 22.9% represented borrowers who continued to make their monthly payments during their forbearance period.

According to the MBA, 15.7% represented borrowers who did not make all of their monthly payments and exited forbearance without a loss mitigation plan in place. Exactly 11% resulted in a loan modification or trial loan modification.

For borrowers still unable to make monthly payments, HUD will give servicers the ability to lengthen the mortgage term. Borrowers could see their mortgage terms extended to 360 months at market rate, to reduce their payments by 25%. In addition to a term extension, borrowers could receive an interest-free subordinate mortgage not due until after the first mortgage is paid off, otherwise known as a partial claim.

HUD will offer a partial claim to borrowers who can start making their mortgage payments again.

The USDA will also offer new options to help borrowers receive a 20% reduction on their payments. The tools include an interest rate reduction, term extension and a mortgage recovery advance, to help cover past due mortgage payments and related costs. The options can be used separately or combined.

There are also options for VA borrowers to reduce their monthly payments after. The VA can purchase up to 30% of borrowers’ unpaid principal balance and arrearages, and provide an interest-free subordinate loan similar to a partial claim. Servicers can also extend the loan term to up to 40 years.

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