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Mortgage

Forbearance rate dips down to 4.5%

Portfolio loans and private-label securities take the lion's share with 31 basis point drop

Servicers’ total number of loans in forbearance dropped for the seventh week in a row, down another 16 basis points last week to 4.5% of portfolio volume, according to the Mortgage Bankers Association. Following the massive decline the week prior, the share of loans in forbearance has dropped a total of 40 basis points in the last two weeks.

Portfolio loans and private-label securities took the lion’s share of last week’s dip after falling 31 basis points to 8.34%. Ginnie Mae loans dropped off 17 basis points to 6.16%, while the share of Fannie Mae and Freddie Mac loans in forbearance once again made up the smallest percentage at 2.44% – an eight basis point improvement.

Interestingly, Fannie, Freddie and Ginnie Mae loans saw a decrease in the number of forbearance exits last week – more than 36% of borrowers in forbearance extensions have now exceeded the 12-month mark. Borrowers backed by government entities have the option to extend their forbearance up to 18 months thanks to continued legislation by the FHFA and FHA.

However, non–federally backed borrowers don’t all have the same blanket policies. A number of these loans may be held in bank portfolios, where it is up to the bank’s discretion to offer relief it feel is most appropriate. Others are owned by smaller investors or repackaged as a PLS, where once again, the documentation in these loans have jurisdiction over what kind of relief a borrower may receive.

Of the cumulative forbearance exits for the period from June 1, 2020, through April 11, 2021, 25.6% represented borrowers who continued to make their monthly payments during their forbearance period. This number has been inversely dropping for months against a rising percentage of borrowers who did not make all of their monthly payments and exited forbearance without a loss mitigation plan in place yet. As of last week, that number is up to 14.6%.

In the last three weeks, the percentage of borrowers exiting with a loan deferral/partial claim has climbed above borrowers who stayed current on their payments. That’s a big shift – since the MBA began tracking these numbers, up-to-date borrowers had previously always made up the greatest share of exits.

The MBA defines loan deferral/repayments as payments that were not made by the borrower that are moved to the end of the loan term to be paid upon home sale, refinance or at maturity. This allows the borrower to resume making their regular monthly payments as before, without needing to “catch up” on missed payments.

While this shift in exits is relatively recent, Mike Fratantoni, MBA’s senior vice president and chief economist, is confident that the economic data on home construction and consumer spending in March forecasts a strong housing market and a quickened pace of economic activity.

“Combined with the homeowner assistance and stimulus payments that many households are receiving, we expect that the forbearance numbers will continue to decline in the months ahead as more individuals regain employment,” said Fratantoni. “Homeowners who are still facing hardships and need to extend their forbearance term should contact their servicers.”

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