Almost a year ago, the passing of
Fourth-quarter numbers released in the foreclosure prevention report show forbearance, at 44%, is giving way to payment deferrals, at 51%, as the main type of foreclosure prevention the GSEs are using. Deferrals
The development bodes well for outcomes on distressed loans backed by major government-related mortgage investors Fannie Mae and Freddie Mac.
“The deferral percentage at the GSEs is real and hopeful, but let’s give it until after June and see if it changes," said Jane Mason, CEO of Clarifire, a mortgage servicing technology provider that specializes in operations involving distressed loans.
The Biden administration’s recent
Right now, it appears that many borrowers are ready to resume their normal payments and in response, the frequency with which forbearance is being used for foreclosure prevention at the GSEs is getting a little closer to historical norms.
After a particularly bad hurricane season in the fourth quarter of 2017, for example, forbearance made up 37% of GSE foreclosure prevention actions, so the 44% seen in the fourth quarter of last year is not that far off. Prior to the pandemic, forbearance’s main use was for natural disasters.
“In 2017, you saw a drop off in modifications that became forbearance, but later reversed to a degree,” Joe Chappell, executive vice president at Covius Settlement Services. Chappell oversees both originations and default services. “I think we can anticipate a similar pattern, except the take rate for coming back to current has been higher than in the past, and the numbers are bigger because the pandemic is national in scope.”
To be sure, outright forbearance numbers at the GSEs aren’t anywhere near closing the gap with those seen before the pandemic, so in that respect normalcy is a long way off.
There were 804,559 GSE loans in forbearance at the end of 2020, representing 2.8% of their single-family book of business. While that’s down from more than 1 million or 3.7% in the third quarter, it’s far higher than the pre-pandemic number in early 2020, when it was near 9,000.
The average industry-wide forbearance rate is roughly 5%, according to the general consensus established by the most recent weekly numbers recorded by Black Knight and the Mortgage Bankers Association.
Many concerns, such as how long forbearance eligibility and foreclosure bans get extended for, and uncertainty around
“In the larger market, a considerable number of people in forbearance are probably going to get loan modification,” Mason said.
That's because some borrowers in forbearance may have jobs that don't come back or may need to work for less pay. Consumers can only sustain a deferral plan if they can resume their origination pre-pandemic payments.
However at the GSEs to date, loan modifications — which call for payment reductions more difficult for investors to absorb than deferrals — have been scarce.
Mods went from representing 62% of GSE foreclosure prevention actions in 4Q19 into single digits in 2020, according to the FHFA’s report.
While the mod share of the GSEs’ foreclosure prevention efforts has risen as high as 78% following major hurricanes, the current uptake rate for payment deferrals suggests that reductions may not be used as heavily this time around, said Chappell.
“A year later, the CARES Act looks pretty successful for the GSEs so far. It appears they’ve put the right tools in place for borrowers and their servicers have been aggressive about outreach,” he said.
