Why Fewer People Are Exiting Forbearances Right Now

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 most recent forbearance data (through April 25):

1. Forbearance Volumes Falls Two Basis Points WoW to 4.47% of Mortgage Loans

This week, we’re seeing another week-over-week drop in overall forbearance volume, down two basis points to 4.47% of total mortgages in forbearance, with ~2.23 million homeowners still in forbearance (see Figure 1 below).

homeowner hardship briefing

Figure 1: Total Forbearance Volume (MBA)

Consistent if gradual reductions in mortgage forbearance volume indicate that we are indeed primed for economic recovery as more Americans receive COVID vaccinations. As of May 3, 2 in 5 Americans are now fully vaccinated according to the latest data from the CDC.

MBA Chief Economist Mike Fratantoni echoed this sentiment, anticipating continued improvements in job and housing market data: “Job market and housing market data remain strong. We expect that further gains in hiring will help to support many homeowners as they exit forbearance in the months ahead.”

2. Forbearance Exit Rates Fall

Despite the continued decrease in overall forbearance volume, forbearance exit rates have fallen while re-entries trend slightly upward. According to the MBA, the uneven scale of entries and expirations have depressed exit rates to their lowest level since February.

As of April 25, forbearance re-entries are up to 4.86% from 4.71% last week, and 82.3% of borrowers in forbearance have already extended their forbearances (see Figure 2).

homeowner hardship briefing

Figure 2: Forbearance Extensions and Re-entries (MBA)

The percentage of borrowers with forbearances longer than 12 months may be leveling off around 40%, but a trend remains to be seen.

3. 25.3% of Borrowers in Forbearance Have Continued to Make Monthly Payments (June 2020- April 25, 2021)

From June 2020 through April 25, 2021, 25.3% of borrowers who have exited forbearance continued to make their monthly mortgage payments throughout their forbearance period (see Figure 3 for forbearance exits week over week broken down by exit reason. Note that the above stat references the period of June 2020-April 25, 2021, while the chart below shows a weekly breakdown).

This likely explains why forbearance exit rates have slowed. Until recently, the majority of forbearance exits were comprised of borrowers who remained current on their payments even while in forbearance. These borrowers were likely more financially stable to begin with, and it’s looking like overall exit rates are slowing in part because all those borrowers who used forbearance as more of an insurance plan have all exited by this point.

homeowner hardship briefing

Figure 3: Forbearance Exits by Reason (MBA)

On the flip side of this is the gradually rising percentage of borrowers who are behind on monthly mortgage payments and have exited forbearance without a loss mitigation plan in place. These borrowers make up 14.6.% of exits as of last week, a concerning increase that servicers will want to keep an eye on in the weeks to come.

4. Percentage of Borrowers Using Loss Mit /Deferral Programs Grows

This week, the percentage of borrowers exiting via loss mit/deferral programs has grown a few points (see Figure 3). The MBA noted that between June 1, 2020 and April 25, 2021, 27% of all exits resulted in a loan deferral/partial claim.

See last week’s notes for a bit more on this exit strategy.

The Bottom Line

No huge shifts in forbearance movement this week, but several developing trends to keep an eye on. With any luck, continued job market improvement will help many borrowers in forbearance get back on their feet, propel forbearance exits, and continue to reduce overall forbearance volume.

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