Latest MBA Data Shows Decreasing Forbearances. But Is Re-Entry Uptick a Concern?

Welcome back to our monthly installment where we have been focusing on forbearance performance utilizing data from the Mortgage Bankers Association. Last month, we dug into payment deferrals as a forbearance exit method in the wake of the FHFA’s recent decision to make this pandemic-era policy permanent. 

Let’s look at the most recent MBA data from April and see what’s worth keeping an eye on as we close out Q2. 

Forbearance Volume Down 0.4% in April 

In terms of overall forbearance volume, as of April 30, total mortgage loans in forbearance have fallen four basis points from 0.55% to 0.51% according to the latest data from the Mortgage Bankers Association released in May. 

That means roughly 255,000 homeowners are currently in forbearance as of April 30. 

And while a month-over-month decrease is encouraging, MBA VP of Industry Analytics Marina Walsh explained this could be partially attributed to some seasonal factors like tax return season showing its influence in the April numbers. 

The MBA is still forecasting an economic slowdown and increase in unemployment later this year, through 2024, so we’ll be watching these numbers closely — especially with latest jobs numbers telling a very different story. 

Most Frequently Utilized Forbearance Exits 

Last month, we discussed forbearance exit methods and, in particular, deferrals, and April’s data per the MBA shows deferrals continue to be the most popular exit method for homeowners exiting forbearance. 

In terms of total forbearance exits since 2020 (June 1, 2020- April 30, 2023), Loan Deferrals/Partial Claims have been the most frequently utilized exit option, accounting for 29.6% of all forbearance exits. 

18.0% of borrowers who utilized forbearance programs continued paying their monthly payments in spite of their forbearance plans (likely, borrowers who requested forbearance as a cautionary measure), 16.1% exited via a loan modification or trial loan mod, 10.9% paid their past-due balance at exit (called ‘Reinstatement’ on the chart above), and 6.5% exited forbearance via a refinance or sale. 

The remaining contingent represents an area of concern: borrowers who lapsed in their payments but exited forbearance without any loss mitigation plan in place. 17.7% of all borrowers in forbearance have exited these forbearance programs without bringing their mortgage current or implementing a loss mitigation program. These borrowers continue to represent a significant portion of the forbearance exit population and we’ll want to watch this group closely for warning signs as we get into the second half of 2023. 

Forbearance Re-entries Creeping Up 

One last thing to watch in the most recent data is the uptick in forbearance re-entries. Marina Walsh noted a number of borrowers struggling with their post-forbearance transitions, with 1 out of 4 homeowners defaulting on their payments post-forbearance.  

 

Re-entries currently account for 12.4% of all mortgages in forbearance and this includes re-entries after forbearance extensions. 

The Bottom Line 

All told, servicing portfolios remain healthy overall and April’s MBA survey data reflects that. However, sustained re-entries and borrowers exiting forbearance with no loss mitigation plans in place are both worth watching in the next few months as some anticipate a slowdown ahead.  

Whatever comes, whether it’s increasing homeowner hardships or a steadfast economy, Sagent cloud-native solutions power the helpful experience your customers demand, while controlling costs and effectively managing risk. Let me know below if you want to see what that looks like for your org.