Mortgage forbearance improves as pandemic emergency draws to a close

As the COVID-19 national emergency draws to a close, the forbearance rate has decreased month over month, according to a report from the Mortgage Bankers Association (MBA) on Monday. While the MBA still expects a recession this year, credit quality is generally good, and borrowers facing financial hardship can access enhanced loss mitigation options, the trade group noted. 

The total number of loans in forbearance in March decreased five basis points from February, dropping to 0.55% from 0.60% of servicers’ portfolio volume. About 275,000 homeowners were in forbearance plans as of March 31.

The most significant improvement came from Ginnie Mae loans in forbearance, which declined 10 basis points to 1.18% in March. The forbearance share for portfolio loans and private-label securities (PLS) also dropped 10 basis points to 0.68%.

The share of Fannie Mae and Freddie Mac loans in forbearance decreased 2 basis points to 0.26%.

“As the COVID-19 national emergency draws to a close, the number of loans in forbearance continues to drop,” Marina Walsh, MBA’s vice president of industry analysis, said. “Mortgage performance remains strong with the percentage of borrowers who were current on their mortgage payments and post-forbearance workouts increasing in March.”

The total for loans serviced that were current last month – which means not delinquent or in foreclosure – reached 96.35% of the portfolio, an increase of 59 basis points compared to February, according to the data.

The survey showed that 33.8% of total loans were in the initial plan stage last month and 52.9% were in a forbearance extension. The remaining 13.3% represented re-entries, including re-entries with extensions.

“MBA’s forecast still calls for a recession in 2023, which may change the current performance levels, but credit quality is generally good and many borrowers facing financial hardship can now access enhanced loss mitigation options that resulted from successes of pandemic-related policies,” Walsh said.

In March, the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac will enhance their payment deferral policies to allow borrowers facing financial hardship to defer up to six months of mortgage payments.

After the government-sponsored enterprises completed more than one million COVID-19 payment deferrals, the FHFA said it was making mortgage payment deferrals a key part of its standard loss mitigation toolkit for borrowers with eligible hardships.  

The goal of the mortgage payment deferral, which has a voluntary adoption date of July 1 and a mandatory adoption date set for October 1, is to promote sustainable homeownership and support, the FHFA said in March. 

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