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Will the End of Forbearance Create a Rush of Foreclosures?

At this point, lenders don’t know. Thanks to easy application terms, they’re not sure how many homeowners are at risk and how many took forbearance “just in case.” On Jan. 3, about 1 in 20 mortgage holders (5.5%) were in a forbearance program, according to mortgage bankers.

NEW YORK – U.S. banks are bracing for losses in their residential mortgage portfolios this year as borrower-assistance programs and enhanced unemployment benefits expire.

The share of mortgages in forbearance has started to creep up, in part because forbearance programs don’t require borrowers to show proof of hardship. That makes it difficult for banks to determine how many homeowners enrolled due to a temporary need, how many could still afford to make payments but took forbearance anyway, and how many will never be able to resume payments again.

About 2.7 million U.S. mortgage borrowers, or 5.5%, were in forbearance programs as of Jan. 3, according to the Mortgage Bankers Association. That figure began rising toward the end of 2020 but remains far below the 8.6% peak in June.

More than half the borrowers in forbearance have requested extensions since October. Banks anow worry about a repayment cliff when relief programs expire.

Most of the increase in forbearance requests have come from customers with mortgages backed by Ginnie Mae, which focuses on first-time and low-income buyers. Those still in forbearance tend to have more debt, spread across more products, than other mortgage borrowers, according to TransUnion.

Source: Reuters (01/11/21) Moise, Imani

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