Majority of borrowers recovered after forbearance

Many households that had postponed payments due to hardships two years ago are back on track, even in groups hit disproportionately by financial distress, according to new research.

More than half of those who in 2021 had temporary forbearance following the 2020 pandemic, were current by March 2023, a report distributed by the Consumer Financial Protection Bureau finds.

Although results in earlier studies raised questions about outcomes, 52.5% of borrowers that had forborne payments in March 2021 were making regular ones 24 months later, according to information from a mortgage database that the CFPB and Federal Housing Finance Agency share.

And while in 2021, primary borrowers identifying as Black or Hispanic were more prone to have suspended payments than other groups, by 2023 they were just as likely — if not more so — to have resumed them.

The share of loans in forbearance that reperformed broke down as follows: Hispanic, 57.6%; Black, 55.2%; Asian or other, 55.2% and white, 50%.

Although the CFPB distances itself from the report, characterizing it as an independent piece of research, its findings lend support to its plan to revise servicing rules in ways that would make more streamlined forms of consumer relief, like forbearance, available post-pandemic.

Mortgage servicers and investors generally find reperformance rates compelling as they suggest forbearance is a strategy that, depending on the cost, could help them rebuild value in a distressed loan.

Forbearance has considerably stronger outcomes than what is seen for delinquent borrowers. Just 26.4% of borrowers whose payments were late by 60-plus days in March 2021 were current two years later.

But mortgage delinquencies have generally remained historically low and relatively stable as forbearance has dwindled, which raises questions about whether there's a broad-based need for the payment suspensions that there was at one point during the pandemic.

The 30-plus day delinquency and foreclosure rate as of April was 2.89%, down 0.1% from the previous month and 0.2% from a year earlier, according to a CoreLogic report released Thursday.

However, rising rates in the past year appear to be exerting some pressure on performance. Though that's been mitigated by strong employment so far, it could lead to more strain later.

Signs of stressors are emerging in pockets of the market although loan performance overall looks strong, with CoreLogic noting that 11 states registered small annual increases in April.

There also are hints of increased distress in the broader universe of consumer lending.

"Structured credit markets are seeing divergences in performance and risks between mortgage and nonmortgage collateral," dv01 noted in a report published Wednesday.

Because people usually prioritize their homes, distress tends to affect other consumer obligations first, so the mortgage industry tends to watch them for signs of trouble.

Stress on consumer lending is not only growing but could intensify further as pandemic related relief continues to be rolled back, VantageScore noted in its latest report. Relief previously extended to educational debt has been on track to end soon. 

"An increasing number of consumers are struggling to make their monthly loan payments," Susan Fahy, executive vice president and chief digital officer at VantageScore, said in the report. "With the expected restart of student loan payments, consumers will need to be extra vigilant in managing their finances."