Here are three key trends from our analysis of homeowner forbearance exit trends during the pandemic:
- Borrowers are exiting forbearance in an orderly fashion. The total number of forbearances peaked in mid-June and consistently declined week-over-week until late November (see Figure 1 below).
Figure 1: MBA data from the week of November 22 show a slight increase in the total percentage of loans in forbearance at 5.54%, up from 5.47% as of November 8.
- Borrowers have exited forbearance three main ways: 1) exit by staying current, 2) exit via a lump sum repayment, and 3) exit via lender allowing payment deferral.
- Some borrowers are re-entering forbearance, but this appears to be a small population at the moment despite a slow increase in re-entries throughout November .
Recently, though, a new and disconcerting trend has emerged: borrowers are exiting forbearance by simply letting their forbearance plans expire.
These borrowers are neither requesting a forbearance extension (which many qualify for) nor taking advantage of additional loss mitigation options provided by their servicers.
Below, I summarize what may be driving this behavior and look at what servicers are doing to correct it.
Forbearance Relief (For Homeowners Who Ask)
Let’s go back to late March of this year. The passage of the CARES Act meant that borrowers could take up to 12 months of forbearance in two six-month increments if their loan was guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae.
Overnight, forbearance requests skyrocketed and servicers reacted quickly to move borrowers into the first six months of forbearance.
Fast forward to early October, when many forbearance plans reached the end of their six-month terms. That initial wave of homeowners from March now had to make a decision: exit or extend.
This is a critical decision because, while the CARES Act provides many accommodations to protect borrowers impacted by the pandemic, one thing it does not guarantee is an automatic forbearance extension.
As a result, while every borrower is entitled to a forbearance of up to 12 months, they must request a second, six-month extension on their own accord if they need it.
But Strained Homeowners Aren’t Asking For Help
The latest data from the Mortgage Bankers Association (MBA) shows that many borrowers who might need an extension are not requesting one.
Starting in October, the percentage of forbearance exits made up of borrowers with no loss mitigation plan in place started spiking (see Figure 2).
Figure 2: forbearance exits with no loss mitigation in place spike in October
The last week of October, that number hit 32.7 percent.
These numbers are well above the overall average for the period of June 1 through November 8, when just 12.8 percent of all forbearance exits happened with this “no loss mit” behavior.
Looking at the most recent MBA data, the numbers are still worrisome but have begun to decline, down to 7.10 percent as of November 22.
Based on our discussions with clients, we believe that what’s taking place is the phenomenon of “ghosting.” That is, while servicers are making extensive efforts to reach borrowers through email, phone, postal mail, and in-person campaigns, many borrowers are simply not responding or actively avoiding their servicers.
As a result, servicers have no choice but to move these borrowers out of forbearance and into a no man’s land between forbearance and foreclosure. Some servicers are even pursuing unsolicited deferrals and loan modifications as a last-ditch effort to get borrowers’ attention.
Obviously this trend cannot last much longer. Homeowners and servicers alike will be on the hook for missed payments. Something must be done.
How Servicers Can Help These Homeowners Today
Servicers did a tremendous job getting homeowners the relief they needed at the start of the pandemic. Now it’s time to work alongside homeowners to get them to where they need to be before they exit forbearance.
One collective response that shows promise is from a group of industry-leading trade groups including the MBA and the Housing Policy Council (both of which Sagent belongs to).
The “Not OK? That’s OK” campaign, launched on November 10, is designed to reach borrowers who may be struggling during this time and to raise awareness around homeowner responsibilities. You can find more information about the campaign on its website.