Loss Mit Wave More Probable As Long-Term Forbearances Age?

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 MBA forbearance data (through May 2):

1. Total Forbearance Volume Drops 11 Basis Points

Another week, another drop in total forbearance volume. As the MBA forbearance data shows, it’s a fairly significant drop, with total volume falling 11 basis points since last week.

This seems to be the “new normal’ where we see a wide range in terms of the percentage decrease week over week.

2. 47% of Borrowers in Forbearance Extensions Have Been in Forbearance 12+ Months

The number of borrowers in forbearance longer than 12 months continues to grow at an alarming rate.

As MBA Chief Economist Mike Frantantoni explained, “More than 47% of borrowers in forbearance extensions are past the 12-month mark as of the end of April. Many homeowners continue to struggle and are falling farther behind on their obligations each month.”

These borrowers will be the ones most in need of loss mitigation when forbearance ends, and servicers must be ready for the influx.

3. 25% of Forbearance Exits Are Borrowers Who Exit without a Loss Mitigation Plan in Place

In terms of reasons for exiting forbearance, this is another week where a significant percentage (25.47%) exited without a loss mitigation plan in place.

This is creating challenges for servicers. The CFPB has already stated that they’ll be watching servicers closely in the months to come, and they underscored that point again on May 4 in a bulletin revealing that in March 2021, consumer mortgage complaints were the highest they’ve been since April 2018.

Many of the complaints were from borrowers who were having trouble reaching their servicers or who were struggling with getting accurate information about their post-forbearance options.

4. Forbearance Re-entries Up to 5%

According to the MBA, forbearance re-entries are ticking up and are now at 5%.

This points to continued strains in the market for this segment of borrowers.

The Bottom Line

In a true K-shaped recovery manner, forbearance data this week invites both cautious optimism and measured concern. On the one hand, things are getting better. The economy is slowly recovering, the job market is improving (albeit slower than we would have hoped), and ultimately, new forbearance requests are low and overall volume continues to decline. On the other hand, the growing number of both forbearance re-entries and maturing forbearances suggests that we may indeed need to start bracing for a looming loss mit wave.