40% of Mortgage Forbearances Are More Than a Year Old

Welcome to Sagent’s weekly homeowner hardship briefing where we bring you the latest forbearance and other data along with key insights and takeaways for servicers. 

Here’s what you need to know this week about the MBA’s most recent forbearance data (through April 18):

1) Week-over-week Drop in Total Forbearance Volume (~2.25M Forbearances)

This week, we’re seeing a drop in overall forbearance volume with 4.49% of total mortgages in forbearance, with ~2.25M homeowners still in forbearance (see Figure 1 below).

Figure 1: Total Forbearance Volume (MBA)

Continuing week over week improvement signals that the underlying fundamentals are strong and that people are starting to get back on their feet. And while this week’s decline is not as drastic as the drops we’ve seen in prior weeks, we are still on pace to be well below 2M households in forbearance by September 30 when the allotted 18-month forbearance period is over. 

The big drops we’ve seen in the last few weeks could be due to a surplus of borrowers exiting at the 12 months mark, as these drop-offs roughly coincide with the boom in forbearance requests that occurred around this time last year. 

2) 50%+ of Borrowers Exiting Forbearance Do So via Payment Deferrals/Loan Mods

This week, the number of borrowers exiting forbearance without reinstatement or putting a loss mit plan in place has decreased (see Figure 2 below). This is very positive.

Figure 2: Top Forbearance Exit Reasons (MBA)

Payment deferrals and loan mods now consistently account for more than 50% of forbearance exits for all investors. However, when you look at the GSEs, the largest method of exiting is through the payment deferral whereas for Ginnie, it’s a combination of modification/partial claim (Ginnie deferral) and repayment.

To quickly recap, payment deferral exits mean that the forborne payments are put into a second, non-interest-bearing lien that is due at the payoff or refinance of a mortgage. In the chart above, this is called Payment Deferral/Partial Claim (the Fannie/Freddie program is called Payment Deferral, and the Ginnie Mae Program is called Partial Claim). Read more on the differences between common forbearance exit methods here.

The high usage of the repayment option for Ginnie Mae loans is an outlier that we find quite interesting, suggesting that people are not spending their mortgage payments to cover other debts. Similar to borrowers who remained current despite being in forbearance, this is a consumer behavior that was not necessarily foreseen when CARES passed last year.

3) 40% of borrowers in forbearance have been in forbearance for 12mo+

That said, 40% of borrowers in forbearance have been in forbearance for at least 12 months (see Figure 3 below).  

Figure 3: Forbearance Extensions (MBA)

This number is seeing a fairly rapid increase and has nearly tripled since around this time last month, and forbearance re-entries have increased over the last month, up to 4.71% this week. 

With the CFPB’s warning that ‘unprepared is unacceptable’ still fresh in our minds, it’s imperative that servicers demonstrate due diligence to ensure they’re doing everything possible to contact those borrowers with aging forbearances or recent re-entries.

The Bottom Line

Total forbearance volume may be trending in a positive direction (down to 2.25M total borrowers in forbearance as of April 18), but we’re not out of the woods yet. Servicers need to keep their focus on the 40% of borrowers with maturing forbearances (12+ months in forbearance) who are clearly still hurting.