'Stronger than expected' drop in active forbearance plans this week

There was a significant drop in the number of mortgages in a forbearance plan this week, following two months of incremental declines, data from Black Knight found.

As of Sept. 1, there were 3.784 million borrowers in active plans, down by 147,000 from the previous week's 3.931 million. It's a 4.7% decline that Black Knight said was stronger than expected. This week's drop was 70% of the decline seen in the period betweenJuly 7and Aug. 25, when there was a reduction of 213,000 in the number of forbearance plans.

Now there are nearly 1 million fewer Americans in a forbearance plan since the high-water mark of 4.761 million set on May 26, Black Knight reported.

Currently, 7.1% of outstanding mortgages, with an unpaid principal balance of $804 billion are in forbearance. Back on May 26, it was 9% of all mortgages, with a $1.05 trillion UPB.

The number of government loans in forbearance has declined the least during this time frame. Currently 11.5% of these loans are in a forbearance plan, with a UPB of $238 billion. At the end of May it was 12.6% with a $262 billion UPB.

Approximately half of this week's decline, nearly 75,000 loans, came from the portfolio and private-label securitization category; borrowers with these loans are not subject to any protections granted by the CARES Act.

There were 47,000 fewer conforming mortgages in forbearance last week, while forbearances for government-insured or guaranteed mortgages fell by 23,000.

The latest Black Knight estimates show mortgage servicers will need monthly advances of $4.6 billion in principal and interest payments and an additional $1.7 billion due in taxes and insurance. Those break down to $1.6 billion and $600 million for Fannie Mae and Freddie Mac mortgages, $1.3 billion and $500 million for FHA and VA, and $1.7 billion and $500 million for private-label.

During August, approximately 500,000 borrowers exited COVID-19-related forbearance plans, while just over 500,000 had their plans extended, Black Knight noted.

This week's decline is no reason to get complacent.

"September may provide the true test, though, as impacted borrowers were still receiving full expanded unemployment benefits up through July 31," company representatives wrote in an accompanying blog post. "More than 2 million COVID-19-related forbearance plans are now set to expire in September, setting up a significant volume of extension/removal activity in late September/early October, reminiscent to what was seen in late June and early July, albeit to a slightly lesser degree."