Coronavirus forbearances spiked in early April, and might again in May

After a deluge at the start of the month, the amount of new mortgage forbearance requests logged in April leveled off as the month went on. A report from Black Knight suggests a similar swell could hit in the beginning of May.

Even though the April forbearance count followed a declining curve, the total increased by almost 2.8 million in the 19 business days from April 6 through April 30. With unemployment growing, May could chart the same trend.

"While total forbearance volumes continue to mount, daily inflow has begun to taper off," Ben Graboske, president of data and analytics at Black Knight, said in a press release. "Between 53,000 and 102,000 new plans have been put into place over each of the last nine days, and even the largest single-day volume was less than a quarter of what we saw at the start of April — and may see again next week.

"What remains an open question at this point is to what degree forbearance requests will look like at the beginning of May — when the next round of mortgage payments become due, and with nearly 30 million Americans newly unemployed in the last month," he added.

Based on the numbers in its own dataset, Black Knight extrapolated an estimated 7.3% of all mortgages currently sit in forbearance totaling almost 3.9 million loans. On April 13, the company predicted the delinquency rate could eclipse the Great Recession's.

In a hopeful scenario, in which forbearance volume decreases 10% per day, the requests would peak at 4.5 million through mid-June. If current volumes track, over 8 million borrowers would enter forbearance by that time, totaling about 16% of all home loans.

With a rise of COVID-19-impacted borrowers delaying their payments, servicers will have to temporarily foot the bill and absorb the unpaid balances. Black Knight appraised total forbearances at a monthly average of $4.7 billion in principal and interest plus $1.7 billion for taxes and insurance.

Fannie Mae and Freddie Mac account for $1.9 billion in monthly P&I and $700 million in monthly T&I, with the FHA and VA registering $1.1 billion and $500 million, respectively.

Prepayment activity reached a near-seven year high in March due to a spike in refinancing thanks to plummeting mortgage rates. But the March data doesn't fully capture the pandemic's financial ramifications. Based on rate lock data — a leading indicator of prepayment rates — the software and analytics provider forecasts a dropoff in April prepayments. Through April 13, refinance-related rate locks stood about 80% below the peaks of early March despite comparable interest rates.