The U.S. forbearance rate fell seven basis points last week to 5.46% of servicer’s portfolio volume, according to a survey from the Mortgage Bankers Association on Monday. As of last week’s data set, forbearance portfolio share is now below numbers Black Knight reported in mid-April of 2020.
Every investor class managed to see a decline in rate, with Fannie Mae and Freddie Mac once again claiming the smallest forbearance rate at 3.19%.
Ginnie Mae loans in forbearance, which include loans backed by the Federal Housing Administration, have fluctuated greatly in the past several months and fell seven basis points to 7.85%. Although portfolio loans and private-label securities (PLS) experienced the greatest decline after a 10 basis point drop, they still held the largest rate at 8.77%.
Overall, forbearances are decreasing, but the speed at which they are declining is beginning to slow. Last week marked the eleventh consecutive week servicers portfolios have hovered between 5% and 6% – the longest a percentage range has held since the survey’s origins in May.
While it arrives as positive news that forbearances are once again descending, economists worry that the length at which borrowers remain in forbearance may become troublesome.
“The data show that those homeowners who remain in forbearance are more likely to be in distress, with fewer continuing to make any payments and fewer exiting forbearance each month,” said Mike Fratantoni, MBA’s senior vice president and chief economist.
Recent data from Urban Institute scholars predicts the now 2.7 million homeowners who remain in forbearance are likely to end up in worse financial shape than the 3.5 million who exited forbearance earlier.
“Fifty-four percent said they have no or slight confidence that they will be able to resume monthly payments when forbearance ends,” the Urban scholars said.
According to Fratantoni, those borrowers who do exit are also more likely to require a modification to their ongoing repayment plans.
Between June 1, 2020, and Jan. 3, 2021, MBA reported that 29.1% of exits represented borrowers who continued to make their monthly payments in forbearance.
During that same time period, those who exited without a loss mitigation plan in place instead inched up to 13.3% from 13.2% the week prior.
Fratantoni estimates slowdowns in recent unemployment numbers will prevent any rapid improvement in the forbearance numbers over the next several months.
“Surging COVID-19 cases caused economic activity to stall in December, with a monthly job loss for the first time since April, and with those jobs mostly concentrated in the leisure and hospitality sector,” Fratantoni said.
