3 Mortgage Servicer Considerations as Forbearance Rates Approach 4%

Welcome to Sagent’s weekly homeowner hardship briefing where we analyze the latest market data, including the Mortgage Banker’s Association’s forbearance data, to offer key takeaways for servicers.

Here are 3 considerations for mortgage servicers as forbearance rates approach 4% (according to the latest forbearance data from the MBA):

1. More Regulatory Changes Ahead

With the June 30 expiration of the foreclosure moratorium approaching, the CFPB is in the process of finalizing their proposed changes to Regulation X.

The current CFPB foreclosure rules require that a borrower be 120 days delinquent before the foreclosure process can start. If the CFPB finalizes this proposal as expected, Reg X would be amended to allow for a special pre-foreclosure review period that would prevent servicers from starting foreclosure proceedings until after December 31, 2021. 

2. The Policy Timeline

Since the early days of the pandemic, policy developments have rolled out quickly and incrementally, resulting in a policy timeline that can be difficult to follow. 

In case you need a refresher, here’s a quick recap of the key policy dates and developments over the last year:

• March 2020: CARES Act passes, providing 12 months of forbearance and a 60-day foreclosure moratorium
• June 2020: Forbearance population peaks at 8.85%, around 4.43M borrowers (per Mortgage Bankers Association forbearance data) 
• September 2020: First six months of forbearance expires, resulting in a significant drop of borrowers in forbearance
• February 2021: Biden Administration announces key changes, including allowing up to 18-months of forbearance, setting June 30, 2021 as the last day to request forbearances, and extending the foreclosure moratorium through June 30
• April 2021: CFPB proposes foreclosure ‘stay’ through December 31, 2021
• May 2021: Forbearance drop to 4.18% (2.1M borrowers), half of the peak from June 2020 (MBA)

3. Upcoming Policy Expirations

As more borrowers with aging forbearances begin to reach the upper limits of the allotted forbearance periods, servicers have to be prepared to guide millions of homeowners out of forbearance and into loss mitigation plans in the coming months.

Servicers need to keep their eye on three key dates as they prepare for this mass forbearance exodus: 

• June 30, 2021: Expiration of the current foreclosure moratorium

• September 30, 2021: The 18-month forbearance period ends for borrowers who went into forbearance in March 2020
• December 31, 2021: The proposed foreclosure stay from the CFPB ends

The Bottom Line

The trends in the MBA’s forbearance data week-over-week suggest consistent, if slowing, movement. As we’ve catalogued in our weekly briefings, we’re seeing a steady (if slowing) drop in forbearance volume, with overall volume dropping to 4.04% as of June 6, which equates to roughly 2 million borrowers still in forbearance. 

However, we’re seeing a simultaneous upward trend in both forbearance re-entries and maturing forbearances (older than 12mo), and a steady increase in forbearance exits as more borrowers explore their loss mitigation options. 

As servicers prepare to help as many as 1.7 million borrowers out of forbearance come September, Sagent’s 3 core performing, non-performing, and consumer platforms have kept servicers in front of all policy and regulatory changes during this unprecedented era.

And we’ll keep doing the same during this summer’s critical 90-day check-ins ahead of September’s policy expirations (above).

We’re on standby to talk about how to help you care for borrowers during this pivotal phase.