As Forbearance Ends
Many borrowers are reaching the end of their 18 month forbearance plans, but this will not lead to a huge wave of foreclosures.
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 CoreLogic today suggests “Nearly three-in-four loans in forbearance are expected to reach the 18-month maximum limit at the end of September.” From CoreLogic: More than 1.2 Million Loans to Exit Forbearance in the Coming Wave of Plan Terminations
At the end of September 2021 – 18 months after the passage of the CARES Act which provided millions of homeowners the protection of COVID-19 payment forbearance – many mortgage loans are expected to reach the end of forbearance. That is, of an estimated 1.7 million mortgage loans that are in forbearance at the start of August, more than 1.2 million loans will reach the maximum 18-month term limit at the end of September, representing 73% of the total forbearance plans. Initially, a 360-day forbearance provision was authorized by the CARES Act for federally backed loans, but it was further extended by federal agencies for an additional six months.
Weekly Forbearance Data
Both Black Knight and the MBA (Mortgage Bankers Association) are putting out weekly estimates of mortgages in forbearance. The number of loans in forbearance in early October should decline sharply. From Black Knight today: Forbearances Remain Relatively Flat (as of Sept 28th)
The number of active forbearance plans fell by another 11,000 (-1.4%) this week, leaving 1.58 million U.S. homeowners in COVID-19 forbearance as of Sept. 28. Larger declines are likely in the coming weeks.
As a reminder, we’ve seen the largest declines in forbearance volumes typically come during the first week of the month, as plans which expired in the prior month are deactivated in servicing systems of records.
Overall, forbearances are now down 192,000 (-11%) from the same time last month, marking the fastest rate of decline we’ve seen since July as early forbearance entrants begin to reach their final expirations.
Given the sheer number of expirations on tap, attention now turns to forbearance volumes over the next two weeks and again in early November. More than 300,000 active plans are slated for review for extension/removal in September, the majority of which are facing final expirations based on current agency guidelines. Another 480,000 plans are up for review for extension/removal in October.
From Black Knight:
Conclusion
In Forbearance Will Not Lead to a Huge Wave of Foreclosures, I presented some data from Black Knight 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.” But there will be some increase in foreclosure activity. I’ll track the data over the next few months, but this isn’t a huge concern.
However, the handling all these exits could put some stress on servicers.