Many distressed loans that never got forbearance predate 2009

The share of mortgages 90-plus days past due and never in forbearance is high, but many of them had troubles predating the pandemic, the Federal Reserve Bank of Philadelphia’s latest report shows.

Sixty-three percent of the 487,976 seriously delinquent mortgages not in loss mitigation never entered forbearance, but 60% of those loans were pre-2009 originations, according to the analysis of Black Knight data by the Philadelphia Federal Reserve’s Risk Assessment, Data Analysis, and Research group.

The finding suggests that the high share of seriously delinquent borrowers without forbearance or other hardship accommodations may have more to do with the Great Recession than the pandemic.

“Many of these loans likely had been worked out before, thus loss mitigation may not have been an option,” the report said.

Borrowers do get some relief from historic loan-performance problems after some time has passed. Delinquencies, for example, typically fall off credit reports after seven years (even when CARES Act rules are not in effect) and usually result in higher scores that improve consumers’ capacity to borrow. But some borrowers with mortgages that were made prior to the establishment of ability-to-repay requirements have had long-term financial difficulties due to the Great Recession’s housing crash. Certain of these loans have remained outstanding due to long foreclosure timelines in heavily regulated states in which foreclosure must be processed through the court system.

The report also reaffirmed that even within the universe of 434,803 borrowers who have exited forbearance and entered loss mitigation, the number of people who aren’t paying remained high, at 72% of that group. However, researchers additionally noted that the number represents a small share of the 8.55 million borrowers who were ever in forbearance. Nearly three-quarters of that group had either returned to performing status or paid off their loans by March 7.