Forbearance numbers fall at quicker pace with relief set to expire

Mortgages forbearance numbers continued steadily declining in the final full week of September, as the first wave of borrowers who took advantage of COVID-related financial relief 18 months ago are set to exit next month.

The share of mortgages in forbearance dipped to 2.89% of total loan servicer volume for the weekly period ending Sept. 26, according to the latest results from the Mortgage Bankers Association’s Forbearance and Call Volume Survey. The percentage reflects a seven-basis point decrease from one week earlier when forbearances made up 2.96% of portfolios. The MBA survey represents 74% of the first-mortgage servicing market.

“The share of loans in forbearance declined at a faster rate last week, dropping by seven basis points, as exits increased, and new requests and re-entries declined,” said Mike Fratantoni, MBA’s senior vice president and chief economist, in a press statement.

“While 1.4 million homeowners remained in forbearance as of Sept. 26, this number is expected to drop sharply over the next few weeks as many are reaching the 18-month expiration point of their forbearance terms,” he noted.

Forborne conventional mortgages backed by Fannie Mae and Freddie Mac made up 1.38% of government-sponsored enterprise volume, a six-basis point drop from the prior week’s 1.44%, while government-insured loans in forbearance decreased to 3.35% of volume, down from 3.42%. The forbearance share among portfolio loans and private-label securities fell to 6.77% from 6.91% the previous week.

At the onset of the pandemic, millions of borrowers with conventional and government-backed loans quickly took advantage of CARES Act provisions allowing homeowners to enter forbearance relief plans on request. The number of distressed homeowners reached peak levels in June 2020, when approximately 4.3 million borrowers were receiving COVID-related protections, but forbearance rolls have slowly contracted since that time, with the pace quickening as expirations approached this fall. A week ago, the share of forborne loans came in below 3% of servicing volume for the first time since March last year.

“Most borrowers exiting forbearance through a workout are opting for a deferral plan, which allows them to resume their original payment, while moving the forborne amount to the end of the loan,” said Fratantoni, suggesting this will continue to be the predominant type of workout ahead of servicers.

Among borrowers that had already left their forbearance plans between June 1, 2020 and Sept. 26, 2021, 28.9% opted for a deferral or partial-claim option, making it the most common outcome for exiting borrowers. Homeowners who maintained payments even while receiving financial protections accounted for 21.7%, while 16.1% dropped out with no loss mitigation plan in place.

Of mortgages still in forbearance, 12.4% are currently in the initial stage, while 78.7% are in extension. The remaining 8.9% are re-entries.

Distressed loans comprised 3.19% of independent mortgage bank servicers’ portfolios, a decrease of five basis points compared to the previous week’s 3.24%. At banks, forbearances dipped even further, accounting for 2.93% of their volume, down from 3.06% week over week.

Despite the heightened pace of exits, weekly servicer call-center volume decreased relative to a week earlier, accounting for 5.9% of servicing portfolio volume, down from 7.9% in the previous period, and the average length of time it took to answer calls decreased from 1.7 minutes to 1.5 minutes. The drop in call-center activity level is likely to be just a temporary reprieve, Fratantoni said.

“Although call volume dropped in the last week of September, we expect that servicers will be very busy through October,” he said.