As Forbearance Ends

The vast majority of borrowers that were in forbearance will return to current status

Previously I wrote: Forbearance, Delinquencies and Foreclosure

Some simple definitions (for housing):

Forbearance is the act of refraining from enforcing mortgage debt.

Delinquency is the failure to make mortgage payments on a timely basis.

Foreclosure is when the mortgage lender takes possession of the property after the mortgagor failed to make their payments. “In foreclosure” is the process of foreclosure.

At the onset of the pandemic, there was a large increase in the number of mortgagors entering forbearance plans with their lenders. This caused some concern that these forbearance plans would eventually lead to a significant increase in foreclosures.

Most of these forbearance plans were for 12 months, with up to 6 months of extensions - for a total of 18 months. Since many of these borrowers entered these plans in April and May of 2020, the 18 months will end in September and October 2021.

An analysis from Black Knight today, in their monthly mortgage monitor, indicates most borrowers are successfully leaving forbearance. Out of the 7.7 million borrowers that entered COVID related forbearance, only a small fraction are in foreclosure or delinquent (and not in active loss mitigation). Here is a chart from Black Knight:

Despite the lack of a federal foreclosure moratorium, post-forbearance loans in active foreclosure have increased by just 2K (to 38K) over the past 60 days

Nearly 250K borrowers returned to making mortgage payments over that same period, with another nearly 200K paying off their mortgages in full

That said, the populations of borrowers in post-forbearance loss mitigation along with those not in loss mitigation that could be subject to foreclosure in the future have risen as well

And this graph shows the current status of loans by plan exit month. Most of the loans in active mitigation recently exited forbearance.

More than 750K borrowers left forbearance plans over the past 45 days, and while the dust continues to settle on their post-forbearance performance, early trends are like other recent exit months

Trends are also becoming clearer among earlier forbearance exits, with fewer than 15% of borrowers who left plans in May remaining either delinquent (8%) or in post-forbearance loss mitigation (5%), a share that falls below 10% among those exiting before the end of April

Among borrowers who left plans from September through November, only 7% are no longer in loss mitigation and remain delinquent, but 38% of such exits – and as many as 53% of those who exited in early November – remain in loss mitigation, as servicers and borrowers work through available options

Given the large volume of exit activity over the past 45 days, all eyes will be on the success rate of those loss mitigation efforts in coming weeks

Conclusion

In a previous post, Forbearance Will Not Lead to a Huge Wave of Foreclosures, I presented some data and argued “that most homeowners in forbearance have sufficient equity in their homes, and there will not be a huge wave of foreclosures like following the housing bubble.”

So far, the data suggests the vast majority of borrowers that were in forbearance will return to current status. I’ll continue to track the data over the next few months, but this isn’t a huge concern.