Forbearance Curve Flattens, But Dark Clouds Loom

Forbearance Curve Flattens, But Dark Clouds Loom

Sharp increase in national delinquency rate may be coming

During the month of May, the focus on forbearance (the dreaded “F-word” in the mortgage servicing industry) was how the demand curve was flattening. The number of Americans in forbearance programs approached 4.75 million as the month ended, well below the 25 million some fearfully predicted at the beginning of April.

The number that’s worth tracking, though, is missed payments.

“Of the 4.25 million homeowners who were in active forbearance as of the end of April, nearly half–46% – still made their April mortgage payment,” said Black Knight CEO Anthony Jabbour. That number toward the end of May had dropped to 21%, which could portend dark clouds ahead for the industry. That could lead to another sharp increase in the national delinquency rate.

Also, of note, is how consumers felt about forbearance. Lending Tree did a survey among 1,000 who took advantage of the program. The most shocking finding: only 5% of those who were approved for forbearance said they wouldn’t have been able to pay their mortgage without it. Approximately 25% said they could have made their monthly mortgage payment, but it would have come at the expense of other essential bills. However, there’s a lot of buyer’s remorse when it comes to forbearance: 72% of those who received forbearance reported feeling at least a little guilty about it.

A key development during May was the implementation of new rules helping those making their payments. Fannie Mae and Freddie Mac borrowers in forbearance can apply for refinancing and new purchase mortgages once their loans are current, thus waiving a previous mandatory wait of 12 months. This move by the GSEs will allow for faster access by the homebuying public to record-low rates.

According to the Federal Housing Finance Authority, borrowers are eligible to refi or purchase a new home if they are current on their mortgage—in forbearance but continued to make mortgage payments or reinstated their mortgage. Borrowers are eligible to refinance or buy a new home three months after their forbearance ends and they have made three consecutive payments under their repayment plan, or payment deferral option or loan modification.

The FHFA also announced the extension of the GSE’s ability to purchase single-family mortgages in forbearance. Fannie Mae and Freddie Mac are now able to buy forborne loans, as long as they are delivered to the GSEs by Aug. 31, 2020 and have only one mortgage payment has been missed. The previous policy was set to expire on May 31, 2020.

There is one twist to forbearance.

Some homeowners have been placed in forbearance programs simply by asking about the program. One such instance occurred when a Massachusetts man, according to CNBC, found out Wells Fargo had placed him in forbearance when he wanted to make his regular mortgage payment. He was able to make the payment after a few calls, but things would get a little trickier. When he tried to take advantage of record-low rates and inquire about refinance options, he found out that his mortgage was in forbearance. A Wells Fargo spokesperson blamed it on the bank’s desire to quickly put loans on forbearance when requested.