Servicers' aggregate obligations to advance or temporarily absorb unpaid funds due to coronavirus payment suspensions could range from $3 billion to $13 billion per month, according to Black Knight.
The amount will depend on the number of loans for which borrowers delay payment. While many mortgage borrowers should be able to receive penalty-free payment deferrals for up to six months or even a year if it will help them address a coronavirus-related hardship, they may not opt to do so. The debt will still accrue and require payment after the forbearance period ends.
With that backdrop in mind, Black Knight estimated what advancing obligations would look like in the event that 5%, 10% or 20% of borrowers got payment deferrals. They found that it could equate to $3.2 billion, $6.5 billion or $13 billion, respectively, in aggregate monthly principal-and-interest payments.
Loan performance and deferral rates may not be uniform across markets.
FHA loans, for example, tend to have higher rates of delinquency that could boost deferrals significantly. But servicers in this market may receive limited assistance with P&I payments if needed from Ginnie Mae, a government agency that insures securitizations of FHA and other government loans.
The Biden administration once again extended the pause on student loan payments enacted to help borrowers during the COVID-19 pandemic, this time through the end of August.
The two states' combined plans amount to over $1.5 billion of the Homeowner Assistance Fund included within the American Rescue Plan Act , which was passed a year ago.
An uptick in pandemic-related payment suspensions reflecting new or restarted plan activity previously occurred as the omicron variant spread, but activity has since subsided.
For Fannie Mae and Freddie Mac loans, Black Knight estimated that obligations could reach $1.6 billion if 5% of borrowers deferred, $3.1 billion if there were a 10% forbearance rate, or $6.2 billion if there were a 20% payment-deferral rate.
Portfolio lenders and others could experience deferrals totaling $900 million (5%), $1.9 billion (10%), or $3.8 billion (20%). While servicers that are portfolio lenders do not have to advance funds as end-investors, they still feel the impact of deferred payments.
For loans insured by the Federal Housing Administration and the Department of Veterans Affairs, the estimates were $500 million (5%), $1.1 billion (10%), or $2.2 billion (20%).
Finally, for mortgages in the private securitized markets, the estimates were $200 million (5%), $300 million (10%) and $700 million.
To date, in practice, the overall coronavirus-related forbearance rate generally has been well below 5%, but that percentage could grow over time, said Stan Middleman, CEO of Freedom Mortgage.
"If this does wear on, more people become unemployed and there are more issues, it could become more challenging," he said.
