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The 6.32% of Loans in Forbearance May Never Be Foreclosed

If forbearance works as intended, homeowners will simply re-start payments when jobs return, and their homes will never go into foreclosure. COVID-19 is the wild card.

WASHINGTON, D.C. – The Mortgage Bankers Association’s (MBA) latest Forbearance and Call Volume Survey found that the number of loans in forbearance decreased by 49 basis points from 6.81% of servicers’ portfolio volume week-to-week to 6.32% as of Oct. 4, 2020. According to MBA’s estimate, 3.2 million homeowners are in forbearance plans.

Lawmakers created forbearance to help homeowners make it through the pandemic-caused recession. Owners with loans backed by federal agencies had an option to forego monthly loan payments for up to a year and, after that time, to essentially start paying them again without penalty or balloon payments. The balance missed during the pandemic could be tacked onto the end of their loan.

Not all loans are federally backed, however, and there’s no certainty lives will return to normal before their forbearance period ends – but an end to the pandemic will likely revive the economy. And some homeowners who failed to follow forbearance instructions may have problems sooner than they expect.

“The share of loans in forbearance declined across all loan types,” says Mike Fratantoni, MBA’s senior vice president and chief economist. “With the forbearance program for federally backed loans under the CARES Act reaching the six-month mark, many borrowers saw their forbearance plans expire because they did not contact their servicer. Another reason for expirations was that borrower information needed to determine an appropriate loss mitigation option was not yet in place.”

For loans backed by Fannie Mae and Freddie Mac loans, forbearance dropped for the 18th week in a row to 4.03% – a 36-basis-point improvement. Ginnie Mae loans in forbearance decreased 89 basis points to 8.27%, while the forbearance share for portfolio loans and private-label securities (PLS) decreased by 33 basis points to 10.06%.

The percentage of loans in forbearance for depository servicers decreased 50 basis points to 6.53%, and the percentage of loans in forbearance for independent mortgage bank (IMB) servicers decreased 54 basis points to 6.65%.

“Borrowers with federally backed mortgages need to contact their servicer to obtain another six months of reprieve if they are still impacted by the pandemic,” Fratantoni says. “As of now, some borrowers are exiting forbearance without making contact or without a plan in place.”

Fratantoni says that the numbers look pretty good for those homeowners who have exited forbearance, however.

“Nearly two-thirds … remained current on their payments, repaid their forborne payments, or moved into a payment deferral plan. All of these borrowers have been able to resume – or continue – their pre-pandemic monthly payments.”

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