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Forbearance rate declines after June’s economic improvements, but will it hold?

With COVID-19 infections in the U.S. surging above 3 million, jobs recovery could be stymied

The U.S. mortgage forbearance rate fell to 8.39% in the last week of June, down from 8.47% a week earlier, as businesses reopened and the jobs market improved, according to a report on Tuesday from the Mortgage Bankers Association.

The drop in forbearances came as the nation’s unemployment rate fell to 11.1% in June from May’s 13.3%, based on job data collected mid-month when the nation was reopening businesses.

“We learned last week that the job market improved more than expected in June,” said Mike Fratantoni, MBA’s chief economist. “With that as background, it is not surprising that the forbearance numbers continue to improve as more people go back to their jobs.”

The share of Fannie Mae and Freddie Mac mortgages in forbearance dropped for the fourth week in a row to 6.17%, a 9-basis-point improvement, the MBA report said.

Ginnie Mae loans in forbearance decreased 11 basis points to 11.72%. The forbearance share for portfolio loans and private-label securities, including jumbo mortgages, increased by 1 basis point to 10.08%.

Since that mid-June labor-market measurement showing people going back to work, COVID-19 infections have set new daily records and surpassed 3 million in the U.S., in total.

In the past two weeks, states representing about 60% of the U.S. population have responded to the acceleration of the pandemic by pausing or reversing reopening plans, according to a report from Goldman Sachs.

The resurgence in the pandemic has “already been much worse than we anticipated, and further restrictions will likely be required in some states to bring the virus under control,” the economists led by Goldman Sachs Chief Economist Jan Hatzius said in the report issued on Saturday.

Another worry is: The beefed-up unemployment provision in the CARES Act, which adds $600 a week to state payouts in an effort to fully replace salaries, is set to expire on July 31.

“If you’re a middle-income household with a job loss, that $600 a week could mean the ability to pay your mortgage and if it goes away it could put pressure on the housing market in terms of either mortgages or rents,” said Joel Naroff, president of Naroff Economics.

In May, the House of Representatives passed the Heroes Act, which extends the enhanced jobless benefits through January and provides almost $1 trillion in relief to state and local governments overwhelmed with the costs of battling COVID-19. Last week, the Senate adjourned for two weeks without addressing the issue.

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