Forbearance has reached the point where less than half of a percent of borrowers have it, and that means servicers will be increasingly reliant on
Cumulatively, almost 30% of borrowers who stopped suspending payments between June 1, 2020 and May 31. 2023,
Another 18% also exited without loss mit but are delinquent due to processing delays
These numbers and the persistence of historically low delinquency rates have resulted in the strongest loan performance to date but the stressors on it have been growing.
The first sustained climb in Fed funds and
Government agencies like the Federal Housing Administration have worked to address this concern by
One question mark in implementing these new measures has been how distressed borrowers respond to them and some mortgage executives participating in a webinar on Wednesday said some have balked at the idea of extending the time they remain in debt.
However, that's having a positive impact in terms of making it less likely borrowers with short-term financial setbacks will choose that route, and more likely that those with more sustained declines in earnings opt for it, in line with the strategy's goal.
"They don't want to go through a term extension or changing their rates because they sometimes don't need to, they just had a bump in the road, maybe it was an unexpected expense or something that set them behind, as opposed to something like a reduction of income or hours, that would be a more long term issue," Ryan Zois, senior director, servicing, at Rocket Mortgage, told attendees participating in an online event on Wednesday.
The next challenge for loan performance might be softer home prices in some regions, a presentation by another speaker at the Covius event on loan-to-value trends suggested.
As local housing bubbles pop in different areas, the current LTVs of different borrowers are changing in somewhat disparate ways, said Allen Weiss, who co-founded an index with Karl Case and Robert Shiller and also has an eponymous analytics business.
Higher LTVs are considered to be a driver of default because when lenders properties aren't worth much more than their mortgages or are underwater on their loans, they have less of a financial incentive to keep paying in order to stay in the home and are more likely to walk away.
Weiss cautioned attendees not to draw too many conclusions about what the driver of dropping home prices in different regions might be but did note that there are some differences, and that he could speculate about the catalysts.
While much has been said or written about price declines in markets like San Francisco and some other markets, less has been said about how they've been affecting two different types of borrowers.
Homes priced at the high end have been most affected in markets like Northern California, whereas in some East Coast markets, it's those at the opposite end of the price spectrum, Weiss said.
"I can't say I've confirmed it, but it seems to me on the West Coast, people wanting to move are wanting to reap the benefit of appreciation, get into a lower tax state and a lower priced state," he said.
Meanwhile, in places like pockets of Western New York and Pennsylvania, price softening may be more a result of affordability strains from rising interest rates.
"People with the less expensive homes are going to tend to be more sensitive to the rate increase if they were to end one mortgage and begin another elsewhere," said Weiss. "I think affordability is just not allowing the lower-priced homes to increase in value."
If streamlining used during the pandemic remains in vogue, servicers may face the challenge of having to trade off the ability to get a verified indication of what a borrower can truly afford in order to get them into foreclosure alternatives faster. That could affect reperformance.
"Requiring no doc reviews, operationally, that saves a lot of time and expense but it's also yet to be determined what will happen redefaulting-wise down the road," Zois said.
