While the total number of forbearances continues to drop, the number of homeowners extending and re-entering forbearances is rising. As we move through August, here are three core themes Sagent is tracking to help mortgage servicers care for customers.
THEME 1: What comes after forbearance?
Traditional loan modifications come after forbearance, and involve adjustments to payments, loan amounts, rates, or terms.
But smart COVID policy response has redefined mortgage loan modifications. Regulators allowing missed payments to be settled at end loan (via refinance or home sale) is a modern-era loan modification that’s done a great job protecting homeowners and the housing economy.
This buys time for servicers and for the market to play out. We just passed the first 90 day mark from the initial spike in forbearances, and there are still almost 4 million loans in forbearance.
Under normal policy, servicers would now need to begin processing millions of loan modifications. But instead, they can just extend forbearances.
Borrowers also get time to regain footing because they don’t have lump sums due after those 90-day forbearance increments.
This protects servicers, homeowners, and the system overall.
THEME 2: Where are we in the forbearance and homeowner hardship cycle?
We’ve dropped from 4.3 million to 3.8 million forbearances in the last seven weeks.
This is great news, but here are two critical stats we’re watching:
(1) Forbearances that received extensions spiked from 6.52% to 53.28% in the same period.
This might just be that people needed full 180 days CARES allowed vs. 90 days servicers give at a time.
That’s why we’re seeing this spike right around the 90 day mark from a huge April forbearance surge.
We’re watching closely because jobless claims have spiked in the last two weeks after declining the previous 4 months. And last week was the 19th week jobless claims were over 1 million.
(2) Homeowners who ended forbearance are now starting to re-enter forbearance.
The number of people re-entering forbearance is small so far: just 0.41% (about 16,000 homeowners) as of July 17 and 0.67% (about 25,000 homeowners) as of July 26.
If this starts to spike like forbearance extensions did, it could be a more telling signal of homeowner strain.
That would then start to indicate how forbearances might escalate into traditional modifications or loss mitigation paths.
We will watch it in real time between now and October, which is 180 days into the forbearance trend overall.
Since CARES allows two 180-day forbearance cycles, we won’t see major modifications or other loss mitigation paths until we get closer to next April.
But by October, this data will start to tell us a lot more about homeowner strain.
THEME 3: How servicers can win with smart homeowners education
Homeowners in forbearance need your insight more than ever right now.
For example, you can win customer trust by educating them well in advance about post-forbearance refinance guidelines.
Simple communications about how many on-time payments you require post-forbearance to qualify for a refi can help customers plan correctly.
This education could help customers find a solution to avoid forbearance re-entry, and if they can’t find a solution, this engagement with them might let you know that early.
Our Sagent team is moving faster than ever to help you monitor your portfolio in real time, as well as engage and educate your customers accurately and compassionately.
Learn more about how LoanServ, Account Connect, and Tempo can power you to better customer care, compliance, and financial management.