What’s Really Causing July Spike In Mortgage Forbearance Extensions?
The MBA’s latest weekly forbearance survey showed that while total mortgage forbearances dropped from 8.55% to 8.18% in the past month, forbearances that received extensions spiked from 6.52% to 43.03% in the same period. Let’s take a look at what the rise in forbearance extensions means and what mortgage servicers can expect in the weeks ahead.
1. Are homeowner hardships or servicer practices causing forbearances to spike right now?
Between June 28 and July 5, the percentage of loans in forbearance that got forbearance extensions jumped from 26.38% to 43.03%. This is up sharply from 6.52% since June 7 (see CHART 1 below).
This jump is happening roughly 90 days after April 1, and it’s no coincidence given that forbearance plans are usually established for 90 day intervals.
As a result, the most recent jump in extended forbearances may not imply worsening strain for homeowners. We know total forbearances dropped every week the past month (see CHART 2 below), and forbearance requests account for just 0.13% of all servicing portfolio volume. So this jump in forbearance extensions might just be an indicator that many people needed a full six months to begin with (as CARES allowed) rather than just 90 days.
We’re closely watching these figures along with our servicers.
2. Two key dates to watch next as forbearances play out
Now that we’re three months out from the first COVID-19 lockdowns that hit homeowners and consumers, here are the next key dates we’re monitoring along with our servicers.
July 15: Weekly servicer call center volumes (as a percentage of portfolio volume) jumped a full 1% to 7.8% for the week ended July 5. This coincides with July payments coming due as well as the forbearance extension spike. We must watch data on both of these figures up to and through the July 15 monthly payment grace period date.
August 1: Not only is this the next payment due date for all mortgage borrowers in forbearance, but it’s also the first day after the end of enhanced unemployment benefits. Roughly 18 million people are currently receiving unemployment benefits. If the government decides to end the enhanced benefits as planned, this decision could fuel forbearance extensions and a new wave of forbearance requests.
3. Servicers need the right tools to help customers through a maturing forbearance cycle
The initial COVID forbearance wave was tough on homeowners, but now servicers can simplify customer care during this hardship journey.
Sagent’s suite — with servicer-facing LoanServ and consumer-facing Account Connect — helps servicers communicate and care for each homeowner based on their scenario while ensuring real-time compliance with real-time policymaking.
We believe servicers must be able to configure (rather than code) for scale customer care and compliance.
When COVID economic strain hit American homeowners all at once in March and April, our servicers were able to quickly add self-serve (using Account Connect) to their full-serve customer care, and also quickly adjust their systems (using LoanServ) to manage critical compliance and accounting functions as CARES and other forbearance and relief efforts came in real-time.
This includes seamlessly evaluating and quickly approving forbearance extensions in this current phase of the cycle.
How Sagent’s Washington team keeps servicers informed, productive, and compliant
The path of the virus will continue to make America’s economy and policymaking very fluid.
While things have improved, they can regress quickly. California’s reinstated lockdowns this week are an example. Policy decisions on unemployment benefits will be a new example imminently.
Our policy team in Washington is in the trenches with agencies and regulators to evaluate, anticipate, and influence positive outcomes for servicers, homeowners, and the American housing system.
Servicers must be prepared to assist their customers through any situation, and we’re here to keep you informed, productive, and compliant.
Matthew Tully is head of Sagent’s compliance and agency affairs, and runs Sagent’s team in Washington, DC. Previously he was head of government and industry relations for a major mortgage insurance company. He began his career in Washington on Capitol Hill. Connect with Matt here.