Forbearance re-entries making life difficult for servicers

Coupled with a slowdown in exits, forbearance drops look lackluster

Servicers’ forbearance portfolio volumes managed to drop one basis point last week to 4.18%, the 13th consecutive week of declines. However, some unfortunate trends are beginning to crystalize.

Despite declines for nearly every investor type, last week’s positive numbers were offset by an 11 basis point jump in forbearance share for portfolio loans and private label securities, according to the latest data from the Mortgage Bankers Association.

On top of that, forbearance re-entries increased to almost 5.6%, as more homeowners who previously canceled their mortgage postponement plans sought assistance once again.

Of the cumulative exits for the period from June 1, 2020, through May 23, 2021, exits performed almost exactly as they had the week prior. Over 27% of exits resulted in a loan deferral/partial claim while nearly 25% represented borrowers who continued to make their monthly payments during their forbearance period  ― though this number has continued to slowly drop for months now.

About two-thirds of homeowners who signed up for some type of mortgage forbearance during the Covid-19 pandemic have exited the programs.

Increasing Lending and Servicing Capacity – Regardless of Rates

The low-rate environment won’t last forever, and both lenders and servicers need to be able to keep their costs down while managing volume fluctuations once things start to normalize.

Presented by: Sutherland

A May study from the Federal Reserve Bank of New York found that, of the over 2 million borrowers still in forbearance in March, 1.2 million entered forbearance in June 2020 or earlier. The Federal Reserve also noted that FHA borrowers were considerably more likely to take up mortgage postponement initially, and have remained in the program longer.

The most likely reason being FHA borrowers are more commonly first-time homebuyers and more likely to live in low-income areas.

“With this context, it’s perhaps not surprising to find that rates rose most, and were most persistent, in lower average income zip codes,” said the Fed. “Forbearance rates in the poorest quartile of zip codes approached 10 percent in May and June 2020 and remain above 5.5 percent at the end of March 2021.”

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