Why Is the Pace of Forbearance Exits Slowing Down?
Welcome to Sagent’s weekly homeowner hardship briefing where we analyze the latest market data, including the Mortgage Bankers Association’s forbearance data, to offer key takeaways for servicers.
Here’s what’s new this week:
1. 2.15% of Total Mortgages Still In Forbearance
Per the latest MBA data as of October 24th, the total number of loans now in forbearance decreased by 6 basis points from 2.21% of servicers’ portfolio volume in the prior week to 2.15%. While this continued progress on exits is great to see, the exit rate has slowed down again for the second straight week.
This leaves roughly 1.1 million homeowners still in forbearance.
2. New Forbearance Requests and Re-entries Remain Low
The latest MBA data shows that 15.59% of total loans in forbearance are in the initial forbearance plan stage, 74.18% are in a forbearance extension, and the remaining 10.23% are forbearance re-entries, including re-entries with extensions.
While it’s fantastic to see new forbearance requests and re-entries remaining low, it’s worth noting that we’re still seeing new entries and re-entries week-over-week. New entries mean that servicers will still be facing these same challenges all the way into 2023.
3. Cancellations Without Loss Mit Plan in Place Slightly Up
Of the cumulative forbearance exits for the period from June 1, 2020, through October 24, 2021, at the time of forbearance exit, 29.1% resulted in a loan deferral/partial claim and another 20.6% represented borrowers who to make their monthly payments during their forbearance period. On top of this, 16.7% of represented borrowers who did not make all of their monthly payments and exited forbearance had no loss mitigation plan in place yet.
With the increase in borrowers exiting without a plan was less than 1bps, it is still a trend that shouldn’t be completely ignored, as it’s been an ongoing problem throughout the year.
The Bottom Line
Once again, we’re seeing overall improvement in forbearance exits even though the exit pace is slowing down a bit. I feel this phenomenon is most likely due to the fact that many borrowers who entered forbearance in March/April of 2020 have now exited.
The huge wave of borrowers who went into forbearance at the start of the pandemic was likely the reason why we’ve seen an accelerating pace of exits over the past few weeks, and with those borrowers safely out of forbearance, the exit rate has subsequently dwindled to a more level pace.
Mike Fratantoni, MBA Senior Vice President and Chief Economist, had a similar hypothesis explaining:
Forbearance exits slowed at the end of October to the slowest pace since late August. With so many borrowers having reached the end of their 18-month forbearance term, we expect a steady pace of exits in November.
I’m very glad to see the continued progress on exit rates, as predicted. Despite the slowing pace of exits, I’m not too concerned and expect to see more continued progress through November.
Sagent’s loss mitigation and consumer platforms are here not only to improve your relationships with your borrowers, but to ensure you stay ahead of them as we push closer to complete pandemic recovery. As you already know, I’m ready to answer your policy questions and talk about how to help you care for borrowers during continued grind.