On mortgage forbearance and arrears

According to new data released by the Federal Reserve Bank of Philadelphia, about 2.15 million mortgages are expected to be forborne or past due, with about 630,000 of those mortgages still forbearance as of April 7.

Forbearances and severely delinquent loans continue to decline from pre-pandemic levels, due to the strength of the housing market and loss mitigation activities implemented by policymakers, investors and managers mortgage loans. However, there are still pockets of borrowers who remain at high risk of losing their homes and need special attention.

In this latest monthly report, examining the resolution of mortgage forbearances and defaults, the charts reflect the first wave of mortgages that went into foreclosure. To date, while catching up to pre-pandemic levels, consumers have yet to see a wave of foreclosures from any backlog. Details are also provided on the disposition of the 8.65 million mortgages that have gone into forbearance since the start of the pandemic – more than three-quarters are performing or paid off.

Of the estimated 852,000 mortgages that are seriously delinquent and not forbearanced, approximately 45% are subject to loss mitigation plans; and while they are in a period of loss mitigation, almost three-quarters do not pay. Minority and low-income borrowers still have higher shares of non-performing mortgages, increasing the importance of the loss mitigation plans discussed in the report.

An estimated 629,714 mortgages remain outstanding, including mortgages from the Federal Housing Administration (FHA), Veterans Affairs (VA) and the two Government Sponsored Enterprises (GSE) – Fannie Mae and Freddie Mac – including almost all federally insured. mortgages, as well as major private sector mortgages from private label mortgage-backed securities (PLMBS) and portfolio loans.

Note that 39% of forbearances are FHA/VA mortgages. Unless mortgage managers can successfully execute stay-at-home options in the coming months, many borrowers face the prospect of selling their home or losing it to foreclosure. The FHA/VA currently has 246,024 mortgages still in forbearance, but their activity targets low-to-moderate income borrowers, who also have higher minority shares.

The analysis focuses on borrowers who still do not pay, whether or not they have forborne. HUD and FHFA offer two primary home support options for borrowers working with their services:

  1. For borrowers who can resume regular payments, missed payments can be repaid in a lump sum, with a repayment plan, or with a deferral or partial claim, in which the missed payments are placed in a subordinate, non-interest bearing lien to be repaid when the mortgage is paid off.
  1. For borrowers who cannot resume regular payments, loan modifications to reduce monthly payments are available with plans announced by FHFA for GSE loans and HUD for FHA and VA loans.

Some 31% of borrowers have taken advantage of the first option so far. Some borrowers will not be able to, or choose not to, resume their regular mortgage payments.

Loan modifications that reduce the mortgage payment are available for these borrowers; 11% have already done so, and an additional 2% are in the process of changing. To achieve this, the FHFA and HUD have adopted payment reduction targets of 20% and 25%.

To assess the effectiveness of the FHFA and HUD plans for FHA loans meeting their targets5, we calculate average declines in principal and interest (P&I) payments and for full mortgage payments that include escrows, typically consisting of principal, interest, taxes, and insurance (PITI).

The three main federally insured programs are the GSE Flex Mod and the two FHA COVID-19 recovery modifications, starting with a 30-year mortgage, followed by one with a 40-year mortgage, which was officially announced on April 1 and expected. be available in June. Each plan achieves its goals differently.

As of April 7, nearly 851,621 non-forbearance mortgages were seriously delinquent, with 45% in some stage of loss mitigation, many of which have exited forbearance. However, note that 72% of them still do not pay at this time. Of the 465,903 severely delinquent loans that are not subject to loss mitigation, 62% have never entered into forbearance. When examined, 60% were originated before 2009. Many of these loans were likely made before, so loss mitigation may not have been an option.

In the case of private loans, 85% of badly delinquent loans not in loss mitigation were issued before 2009. Due to the CARES Act moratorium on foreclosures and subsequent temporary protections from the Financial Protection Office of Consumers (CFPB), foreclosure activity came to an abrupt halt in March 2020 for all but vacant or abandoned properties through December 2021. These protections expired on January 1, 2022.

In January, the number of foreclosures increased to about 56,000, which is in line with pre-pandemic levels. February and March saw 37,000 and 36,000 new seizures respectively. Although these numbers are much higher than those of the pandemic, they are now at the levels seen before the pandemic. So we have yet to see an increase in foreclosures since the protections ran out.

An important aspect of the pandemic is its unequal impact on different racial and ethnic groups. To examine these effects, we merged a sample of our service data from Black Knight Analytics with confidential Home Mortgage Disclosure Act (HMDA) data, in which the borrower’s race and household income are collected during the request. Some 6.9% of black borrowers are in arrears, the highest of any group. Hispanic borrowers have the next highest rates, above those of white or Asian borrowers.

These states include borrowers in forbearance, borrowers not in forbearance but in some stage of loss mitigation, and borrowers in default but not in forbearance or loss mitigation. .

The most recent report documents the performance of these loss mitigation programs to date and the remaining pockets of risk.

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