Servicers helped 5M COVID-impacted borrowers stay in homes

Servicer efforts to assist borrowers following the expiration of CARES Act relief measures helped 5 million households avoid property loss, according to a report from the Federal Reserve Bank of Philadelphia.

Of the 8.5 million borrowers who entered forbearance plans during the COVID-19 pandemic, more than 95% have exited, the Fed concluded in its final analysis of an eight-part series dating back to September 2021. Five million who went through servicer provided workouts after exiting managed to keep their homes and move back into a reperforming state through those programs, a number representing about 58% of all forborne loans. 

"Our overall findings are that the program mitigated a default wave like that experienced during the Great Recession of 2008-09, as both government and private lenders participated on a broad scale to provide forbearance relief to all who requested it," wrote researchers from the bank's Risk Assessment, Data Analysis, and Research, or RADAR, Group.

Of the homeowners needing loss mitigation assistance, 22.7% accepted a repayment plan, 18.1% took deferral, while 16.4% underwent loan modification. Just under 1% accepted a trial modification.

Among the remaining total of borrowers taking CARES Act forbearance protections at some point during the pandemic, 22.5% returned to a current state through a lump-sum payment, while the remaining 19.5% have not yet exited, paid off out of delinquency or a forborne state, or are listed as delinquent or in default. Of the 11.7% share paying out of delinquency or forbearance, most managed to avoid default thanks to the rapid acceleration in home prices between 2020 and 2022, the RADAR Group said.

Success with COVID-19 relief measures have led some regulators and housing industry leaders to voice support for the development of similar successor plans to assist distressed homeowners going forward.  

Forbearance volumes have now fallen back to pre-pandemic levels for loans at portfolio lenders or guaranteed by Fannie Mae or Freddie Mac, the RADAR group reported. But close to 200,000 loans backed by the Federal Housing Administration or Department of Veterans Affairs, commonly taken to purchase starter or lower-priced properties, still remain in forbearance plans. 

Although the CARES Act and post-forbearance servicer outreach helped lead to lower levels of foreclosure and long-term distress that many had initially feared, current past-due rates remain higher for minority and lower-income borrowers.

Seven percent of Black borrowers presently have loans past due, exceeding the share of Hispanic, white and Asian homeowners, at 4.5%, 2.8% and 1.4%, respectively. 

RADAR Group findings came through an analysis of data from Black Knight's McDash Flash dataset and the Home Mortgage Disclosure Act.