Forbearances fall further and faster mid-month

Forbearance exits picked up from the previous week, maintaining a pace set earlier this year, with levels falling among all major loan types, according to the latest data from Black Knight.

Forbearances dropped by 19,000, for the weekly period ending Oct. 26, after falling by 7,300 a week earlier. Mid-month declines are typically more muted compared to data from earlier and late in the month, when plans reach their scheduled review dates. The current number of borrowers in forbearance currently total approximately 1.22 million, 1.5% below the previous week’s figure of 1.24 million. The data comes from Black Knight’s McDash Flash daily dataset.

“More than 470,000 homeowners left forbearance in the first 26 days of October, making it the largest month for exit activity in more than a year,” said Andy Walden, vice president of market research at Black Knight, in a blog post.

Approximately 140,000 distressed borrowers are approaching the end of pandemic-related forbearance relief granted through the CARES Act, which will likely lead to further reductions in the coming weeks, he added. Homeowners who opted for CARES Act protections at the beginning of the COVID-19 pandemic in March 2020 saw them expire at the end of September per the bill’s provisions.

According to the Mortgage Bankers Association’s survey of servicers, 22.4% of those who have left forbearance plans between Oct. 4 and 17 did so with no loss mitigation plan in place.

Forborne loans currently make up 2.3% of active mortgages relative to the entire servicing portfolio of 53 million. That total includes 1.3% belonging to government-sponsored-enterprise pools, 3.9% of the volume backed by either the Federal Housing Administration or Veterans Affairs and 3% in portfolio-held or privately securitized loans.

Forbearances decreased across all loan types, with loans backed by GSEs falling by 7,900 after recording a 2,800 decline the week prior. Falling nearly as much in volume were FHA- and VA-sponsored loans, where 7,700 borrowers dropped off, slowing from the previous week’s larger dip of 10,500. The portfolio and PLS pool of forbearances also declined by 3,300, reversing course a week after it added 6,000 new distressed borrowers.

With the drop in distressed borrowers, unpaid balances among mortgages in forbearance decreased by 1.3% week over week from approximately $231 billion to $228 billion. The current total includes $74 billion in GSE pools, down from $76 billion a week earlier. FHA/VA-backed loans account for $79 billion, edging down from $80 billion seven days ago. $75 billion are held in distressed portfolio or private-label securities, the same as the previous week.

Earlier this month, the Consumer Financial Protection Bureau extended the deadline for homeowners to make initial forbearance requests due to pandemic hardships for government-sponsored loans, including those taken through FHA and VA programs. Originally scheduled to expire at the end of September, the request deadline has been extended until the end of the pandemic.

But thus far, the extension has not resulted in a wave of new forbearance starts that have noticeably slowed the pace of decline. Although new starts edged slightly higher for the week, the number is 28% below the level from the same time last month, Walden said.