Many delinquent borrowers in loss mitigation aren’t paying

Hundreds of thousands of borrowers more than 90 days delinquent and in loss mitigation plans aren’t paying, a new study reveals.

Across all investors, 964,464 mortgages remain seriously delinquent and not in forbearance, with 49% in loss mitigation plans as of Feb. 7, the Federal Reserve Bank of Philadelphia’s Consumer Finance Institute said. Of those 474,071 borrowers in loss mitigation, 72% aren’t paying, according to data compiled from Black Knight and the RADAR Group.

The figures come as foreclosure activity begins to rise, with an estimated 56,000 foreclosure starts in January, the report said. (January filings related to foreclosure were up 29% from the month before according to a separate report by Attom Data.) Of the 53 million active loans held by investors, 707,104 remain in forbearance, with a combined $136 billion in unpaid balances. The report comes after the Consumer Financial Protection Bureau’s COVID-related borrower protections for preventing immediate foreclosure proceedings ended Dec. 31.

“Since most of these [forbearance] plans will expire in the next five months and protections against foreclosure expired on January 1, we are at a critical phase in this last stage of the housing market recovery from the pandemic,” the report stated.

Minority and low-income borrowers were most in distress, with 7.9% of Black borrowers in some past-due state, the highest share of any demographic, according to the Fed, which used still-confidential data from the Home Mortgage Disclosure Act. The figure underscores the fact that Black borrowers are repeatedly disadvantaged in the homeownership process.

Non-Hispanic non-whites (5.5%) were the next highest group in some past-due state, followed by Hispanics of any race (5.4%) and non-Hispanic white borrowers (3.4%). Mortgages originated with borrowers in the lowest quartile of income had the highest rate in some past due state with 5.4%. Private label MBS loans also had an 11.7% share of mortgages in some past due state, the most among investor types.

The Federal Housing Administration and Veterans Affairs held the most loans that were 90 days or more past due and not in forbearance (400,264) among investors, according to the Fed. Of their 248,756 borrowers seriously delinquent, not in forbearance and in loss mitigation, 79% aren’t paying, the highest rate among investor portfolios.

Fannie Mae and Freddie Mac had the lowest share of borrowers in loss mitigation not paying, accounting for 53% of its 148,165 seriously delinquent mortgages not in forbearance. Borrowers with private label MBS and portfolio mortgages in the same status had non-paying rates of 76% and 71%, respectively.