Homeowners who left forbearance now more likely to require help

Real Estate

Homeowners who left forbearance now more likely to require help

More than half a million homeowners who put their loans in forbearance during the pandemic are now in active loss mitigation, a 37 percent jump from a month ago, as relief programs that allowed millions of borrowers to put their payments on hold for up to 18 months expire.

About 15 percent of all U.S. mortgage holders, or 7.7 million borrowers, enrolled in forbearance plans at some point during the pandemic, according to Black Knight’s latest Mortgage Monitor Report.

The vast majority of those homeowners (84 percent) have already exited forbearance, and most are either current on their mortgage payments (51 percent) or have paid them off in full (23 percent) by refinancing or selling their home.

But those kinds of favorable outcomes were more likely for borrowers who exited forbearance earlier in the pandemic — often voluntarily.

Now that homeowners are typically being forced to leave forbearance, most are ending up in loss mitigation plans designed to help them catch up on missed payments and avoid losing their homes in foreclosure. Depending on the type of loan they have, they may be able to enter into a repayment plan, apply for a loan modification, or defer their missed payments until they refinance or sell their home. Homeowners can learn more about their options on the Consumer Financial Protection Bureau’s website.

The latest numbers from Black Knight show that, among the 433,000 borrowers who exited forbearance during the first 19 days of October, only 40 percent are current on their loans, and just 3 percent paid their loans off. Another 51 percent are in loss mitigation plans, and 6 percent are delinquent on their loans and not in a loss mitigation plan.

All told, there were 505,000 homeowners in post-forbearance loss mitigation as of Oct. 19, up from 368,000 a month ago.

That’s hasn’t led to a wave of foreclosures because loan servicers must give homeowners the chance to apply for assistance before initiating foreclosure proceedings.

But with another 450,000 homeowners who are still in forbearance scheduled to hit their 18-month program limits by the end of the year, mortgage servicers are facing a heavy workload.

“While the largest single month of forbearance plan expirations is now behind us, the industry challenge persists,” Black Knight analysts said of the work that lies ahead.

More than 225,000 final expirations in coming months will be FHA or VA loans, the report noted, and those loans tend to have higher loan-to-value ratios and lower borrower credit scores, increasing the likelihood of default.

Thanks largely to a moratorium on foreclosures during the pandemic that expired July 31, there were only 135,000 homes in active foreclosure in September, and the 0.26 percent national foreclosure rate was new all-time low.

Black Knight estimates that loan servicers initiated foreclosure proceedings on 36,000 homes in August and 37,000 homes in September, “suggesting that servicers remain reluctant to start foreclosure proceedings as they continue to pursue available workout options,” the report said.

By comparison, at the height of the last housing bust, Black Knight data shows foreclosure starts peaking at 323,000 in March, 2009, and the total number of homes in active foreclosure topping out at 2.3 million in December, 2010.

Low interest rates have been a boon for homeowners who are in a position to refinance, Black Knight analysts noted, with 8.8 million homeowners refinancing their mortgages at lower rates in the last 18 months. The money those borrowers will save represents $16 billion in annual savings — a “continuing, ongoing economic stimulus.”

Another 5.5 million homeowners cashed out $322 billion in home equity when refinancing during the same period, in most cases reducing their mortgage rate, the report said.