Forbearance numbers fall below 200K

The number of homeowners in forbearance fell below 200,000 as of July 31, as the reasons borrowers seek to pause payments shift, the Mortgage Bankers Association said.

Forbearances totaled an estimated 195,000 in July to make up 0.39% of mortgages currently held in servicers' books, according to MBA's monthly loan monitoring survey. The portion inched down 5 basis points from 0.44% in June, equaling approximately 220,000.

While COVID-19 still looms over servicers' business, the make-up of the forbearance profile is changing, according to Marina Walsh, MBA's vice president of industry analysis.

"About two-thirds of borrowers are still in forbearance because of the effects of COVID-19, but a growing share of borrowers are in forbearance for other reasons that cause temporary hardship such as financial distress or natural disasters," she said in a press release.

"With the COVID-19 national emergency lifted, Fannie Mae and Freddie Mac recently announced the retirement of certain COVID-19 flexibilities relating to forbearance plans and workouts," she noted.

The effects of COVID-19 accounted for 69.3% of the borrowers presently in forbearance to initially seek relief, the MBA reported. Another 24.3% cited temporary hardship due to job loss or other unanticipated event. The remaining 6.5% entered a forbearance plan because of a natural disaster. 

"Given the recent natural disasters impacting California, Washington and Hawaii, forbearance is one way for mortgage servicers to mitigate the potential impacts on homeowners," Walsh noted. The effect of recent climate-related events on homeowners, though, would not begin to reveal themselves in servicing outcomes until the fall. 

Earlier this month, the National Oceanic and Atmospheric Administration also forecasted an above-normal level of hurricane activity this year with between 14 to 21 named storms. Of that number, two to five could turn into hurricanes with wind speeds greater than 110 miles per hour, NOAA said. Hurricane Ian last year ultimately caused between $41 billion and $70 billion in damages, according to CoreLogic.

By investor type, mortgages in forbearance at Fannie Mae and Freddie Mac inched down to 0.2% of their total servicing volume in July, down from 0.21% the previous month, the MBA said. Meanwhile, the share guaranteed by Ginnie Mae saw a larger 13 basis point decrease to 0.8% from 0.93%. 

Forborne portfolio and private-label securities loans accounted for 0.45% of servicing volume in their books, compared to 0.52% in June.

The share of forbearances in the portfolios of independent mortgage banks dropped 8 basis points to 0.48% from 0.56% at the end of July. Similarly, forborne loans at depository banks and institutions edged down to 0.3% from 0.32% in June.

Among all mortgages in forbearance, 36.5% are in their initial plan stage, while 53.3% were granted extensions. The remaining 10.3% were classified as forbearance re-entries, including loans previously in extension.

Since the arrival of COVID-19 in 2020, 7.9 million borrowers have sought forbearance protection, according to the MBA's data. Relief was made available to most homeowners with the enactment of consumer-protection pandemic regulations. Borrowers with liens backed by Fannie Mae, Freddie Mac or various government agencies all became eligible for a full year of forbearance, with up to an additional six months of extensions on request. 

Government agencies and servicers also rolled out various loss-mitigation measures in the past few years aimed to keep struggling borrowers in their homes upon exiting their forbearance plans. The success of some of those efforts have led to proposed successor programs that would aid all distressed homeowners. 

Among borrowers who have exited forbearance at any point between July 1, 2020 and July 31, 2023, 17.8% remained current on their payments even while enrolled in relief. A slightly larger share of 18% missed at least one payment but exited without agreeing to any loss-mitigation program. A month ago, the shares were equal at 17.9%. 

Meanwhile, another 29.5% of loans ended up in a deferral or partial claim, while 16.1% resulted in a modification, either on a permanent or trial basis.

Another 10.8% of borrowers had loans reinstated, with past-due amounts paid back upon forbearance exit. In 6.5% of cases, loans were paid off either through a refinance or sale of the home. 

The remaining 1.2% of exits ended up in repayment plans, short sales, deed-in-lieus or other unclassified circumstances.

As borrowers have left their forbearance plans in the past three years, though, delinquencies have likewise fallen, with the rate recently hitting a decades-long low, the MBA found. Many researchers credit the resilience of the U.S. economy during COVID-19 for driving levels downward. At the end of the second quarter, the national delinquency rate came in at 3.37%, more than 70 basis points lower from where it sat at the beginning of 2022.