New year sees 2.74 million loans in forbearance

Black Knight estimates 5.2% of all mortgages in forbearance

After three consecutive weeks of increases, the number of mortgage loans in active forbearance fell by 92,000 the first week of 2021, according to a Friday report from Black Knight. This was a 3% drop and the greatest week-over-week decline since early November, largely driven by quarterly forbearance plans reaching their expiration.

Black Knight now estimates 5.2% of all mortgages, and 2.74 million homeowners, are in some form of forbearance – accounting for $547 billion in unpaid principle.

Overall, forbearances fell in every investor class, though Federal Housing Administration and Veterans Administration loans in forbearance once again took the largest share (9.3%) and the weakest decline (-2.8%).

Fannie Mae and Freddie Mac loans in forbearance fell 3.3% and held their title once again as the lowest portfolio share, also at 3.3%.

Loans in forbearance as a share of private label securities or banks’ portfolios experienced the greatest decline week-over-week as they were down 3.9%.

However, the rate at which borrowers are exiting forbearance is beginning to slow.

The 3% decline in the first week of January fell sharply short of the 9% drop July had previously seen during the first quarterly wave of expirations. It also pales in comparison to the 18% reduction in the first week of October when plans began to reach six-month expirations.

Though expiration dates fluctuate, forbearances have only improved by -1% in the past 30 days. June through November, that drop was closer to -7.5% month-over-month.

In the week prior, Black Knight reported 270,000 plans were set to expire at the end of December, and another 367,000 by the end of January.

But most expiring plans are typically removed the first week of the month.

Within the first seven days of the previous three months, more than 60% of loans in expiring plans were removed. For January, it was just 35%.

As of last week, the industry is now just a little under three months away from the anniversary of the March 27 CARES Act, which allowed homeowners to ask for initial forbearance from their servicers.

After it was passed, forbearances would continue to rise till a peak in May – when 9% of all mortgages had entered into a COVID-19 forbearance plan. And though May 22 represented the nation’s peak, Black Knight estimated nearly half of the 4.25 million homeowners who were in forbearance at the end of April still made their monthly payment.

According to the Mortgage Bankers Association, of the cumulative forbearance exits from June 1 through Dec. 27, the average number of borrowers who had made their monthly payment was closer to 29.5%. Another 13.2% represented borrowers who had not, and exited forbearance without a loss mitigation plan.

While the active number of forbearances have yet to fall to half that of May’s peak, Black Knight did report that new forbearance starts and total starts hit their lowest level since the early stages of the pandemic. A hopeful sign that exits will outweigh starts as the year goes on.

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