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Fewer Homeowners Relying on Mortgage Forbearance

The percentage of homeowners with a temporary mortgage-payment hold decreased for Fannie- and Freddie-owned loans but increased for homeowners with FHA and VA loans.

NEW YORK – Many homeowners were offered an easy-to-use mortgage forbearance option under federal pandemic rules. In most cases, they were allowed to stop paying their monthly mortgage until they were back on their feet after the COVID-19 first began to spread.

Some experts have predicted a surge of foreclosures based, in part, on the number of homeowners who opted for forbearance, but that depends on how many of those owners start making monthly payments again as their forbearance period ends. To find the answer to that, the Mortgage Bankers Association (MBA) has conducted a weekly Forbearance and Call Volume Survey.

In the latest survey from July 26, MBA found that the percentage of all mortgages in forbearance has dropped for eight weeks in a row, with 7.67% in forbearance last week compared to 7.74% the week before. According to MBA’s estimate, 3.8 million homeowners are in forbearance plans.

However, MBA found a difference when comparing mortgages owned by government enterprises (GSEs) – largely Fannie Mae and Freddie Mac – compared to loans under Ginnie Mae, which backs FHA and VA loans. Overall, the percentage of homeowners in forbearance under Fannie and Freddie has gone down, while the percentage under VA and FHA programs has gone up.

“The share of Fannie Mae and Freddie Mac loans in forbearance dropped for the eighth week in a row to 5.41% – an 8-basis-point improvement,” MBA says in the study. But “Ginnie Mae loans in forbearance increased by 1 basis point to 10.28%.”

Forbearance in portfolio loans and private-label securities (PLS) – mortgages that don’t fall under Fannie, Freddie, FHA or VA – decreased 16 basis points to 10.37%. The percentage of loans in forbearance for depository servicers dropped to 7.95%, while the percentage of loans in forbearance for independent mortgage bank (IMB) servicers decreased to 7.81%.

“The share of loans in forbearance declined, but we are now seeing a notable pattern developing over the past two weeks,” says Mike Fratantoni, MBA’s senior vice president and chief economist. “The forbearance share is decreasing for GSE (Fannie Mae and Freddie Mac) loans but has slightly increased for Ginnie Mae (FHA and VA) loans.”

Fratantoni says a cooler job market and increased layoffs may be the reason, and “the economic rebound may be losing some steam because of the rising COVID-19 cases throughout the country. It is therefore not surprising to see this situation first impact the Ginnie Mae segment of the market.”

MBA’s report includes 75% of the first-mortgage servicing market (37.3 million loans).

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