Mortgage forbearance rate takes biggest fall yet: MBA

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The pace of loans going into forbearance shrunk for the fifth week in a row, reaching a two-month low as more borrowers returned to work, according to the Mortgage Bankers Association.

The rate of mortgages going into forbearance plunged 38 basis points between July 6 and July 12, making it the steepest decline since the pandemic started, the MBA found.

About 7.8% of all outstanding loans or about 3.9 million mortgages sat in forbearance plans the first full week of July, compared to 8.18% and an estimated 4.1 million in the MBA's report the week prior. The share of loans in forbearance at independent mortgage bank servicers fell to 7.83% from 8.1%, while depositories declined to 8.23% from 8.8% over that period.

"Almost half of borrowers remaining in forbearance are now in an extension of the original term, while the remainder are in their initial forbearance plan," Mike Fratantoni, the MBA's senior vice president and chief economist, said in a press release. "The pace of new forbearance requests remains quite low compared to earlier in the crisis, but we are watching carefully for any increases due to either the pick-up in COVID-19 cases or the cessation of enhanced unemployment insurance benefits at the end of this month."

The overall decrease was broad based, as forborne mortgage of every type fell.

The forbearance share of conforming mortgages — those purchased by Fannie Mae and Freddie Mac — dropped to 5.64% from 6.07%. Ginnie Mae loans — Federal Housing Administration, Department of Veterans Affairs and U.S. Department of Agriculture Rural Housing Service products — dropped to 10.26% from 10.56%.

Private-label securities and portfolio loans — products not addressed by the coronavirus relief act — continued their high-variance trend and fell to 10.41% from 10.93%.

Forbearance requests as a percentage of servicing portfolio volume stayed static at 0.13% from July 5, while call center volume as a percentage of portfolio volume increased to 8.3% from 7.8%.

The MBA's sample for this week's survey includes a total of 51 servicers including 27 independent mortgage bankers and 22 depositories. The sample also included two subservicers. By unit count, the respondents represented nearly 75%, or 37.3 million, of outstanding first-lien mortgages.

Some industry experts warn that lenders should brace for more coronavirus fallout, despite the rate of forbearances continuing to fall.

"I don't think we should take a lot of solace in the fact there have been fewer forbearance requests," Cam Melchiorre, president and director of regulatory compliance at IndiSoft, said in an interview. "I don't think we're going to see the real problem until later in the year, when you have the number of people coming out of those forbearance agreements that really needed a full workout because of negative economic influence. I think it's forestalling many of the assistance programs."

Melchiorre noted that a number of state laws will present challenges for mortgage servicers down the road.

"There are some states that are not only extending the moratorium, but providing additional benefits to consumers that dovetail off the CARES Act," Melchiorre said. "That to me is an interesting and challenging variable for servicers dealing with the state laws in conjunction with the federal CARES Act and then what the investors are requiring. The regulatory change management processes are overwhelmed right now."

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