Forbearances fall as 400,000 plans near exit

Forbearance numbers continued their steady decline this year, now down by more than two-thirds from the peak in 2020, as the end of CARES Act protections is expected to lead to further reductions in September.

Outstanding mortgages in forbearance decreased by 92,000 for the weekly period ending Sept. 7, according to Black Knight — a 5.4% drop-off from the previous week’s total. Numbers fell significantly across investment types, with portfolio and private-label securities shedding 40,000 forborne loans, 7.7% of its volume. The pools of loans backed by government-sponsored enterprises or taken through Federal Housing Administration or Veterans Affairs programs both reduced their share of distressed plans by 26,000, representing declines of 5.1% and 3.8% respectively.

Lingering August expirations and new September activity accounted for the larger weekly dip, according to Andy Walden, Black Knight’s vice president of market research. One week earlier, forbearances decreased by 53,000.

“Additional activity is expected later in the month as well, with nearly 540,000 plans still scheduled for review for extension/removal in September,” Walden said in a blog post. Of that total, approximately 400,000 will see financial relief provided by the CARES Act end and return to making payments in October.

Portfolio and private-label loans, though, received no federal protections, sometimes resulting in more volatile patterns compared to the other investment types. But the segment’s high percentage of drop-offs last week was more likely driven by expirations, Walden said.

“It wouldn’t be overly surprising to see behavior among that group continue to vary from FHA/VA/GSE in the coming months, as they’re not governed by a uniform set of guidelines like HUD and FHFA, so some plans could be extended longer or shorter than others,” he said.

Walden pointed out, though, that the monthly decline in forbearances among portfolio and private-label securities was 6.4%, roughly equivalent to what was seen among FHA/VA loans during that period but smaller than the 9.5% drop for GSE loans. “All in, that group is down 61% from its peak, as compared to 66% for the market as a whole.”

Unpaid balances of distressed loans added up to $313 billion, a 5.4% decrease from $331 billion seen one week earlier. GSE mortgages in forbearance plans accounted for $101 billion in unpaid balances, down 4.7% from $106 billion the prior week, while among FHA/VA mortgages, $110 billion was due from forborne loans, 3.5% lower than the previous week’s $114 billion. The sum of unpaid balances in portfolio and private-label loans was $103 billion, falling 7.2% from $111 billion week over week.

Overall, mortgages remaining in COVID-19-related forbearance plans totaled 1.62 million, falling by 7.4% or 129,000 compared to a month ago. The current volume of distressed loans represents a 67% decrease from its peak level of 3.1 million in May 2020. Forborne loans account for 3.1% of the 53 million outstanding mortgages nationwide.

The share of forbearances in GSEs equaled 1.7% of their overall volume, while distressed FHA/VA-backed loans made up 5.4% of the total in its segment. Approximately 3.7% of portfolio/PLS mortgages were in active forbearance.

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