Forbearances rose for the third straight month
Mortgage loan forbearance rates rose for the third straight month in August, as more borrowers sought relief amid a weakening labor market.
The Mortgage Bankers Association (MBA) reported that the total percentage of mortgage loans in forbearance increased to 0.31% by the end of August, up from 0.27% in July.
According to MBA’s Loan Monitoring Survey, around 155,000 homeowners are currently in forbearance plans. Since March 2020, mortgage servicers have provided relief to approximately 8.2 million borrowers who faced financial difficulties, often due to the COVID-19 pandemic and other economic factors.
“For the third consecutive month, the percentage of loans in forbearance increased across all loan types,” said Marina Walsh, MBA’s vice president of industry analysis.
Ginnie Mae loans experienced the most significant rise, with the forbearance rate climbing from 0.56% in July to 0.66% in August. Fannie Mae and Freddie Mac loans saw a slight uptick, increasing from 0.12% to 0.13%. For portfolio loans and private-label securities (PLS), the forbearance rate inched up from 0.33% to 0.35%.
For Independent Mortgage Banks (IMBs), the percentage of loans in forbearance increased to 0.35% in August, up from 0.30% in July. Depository institutions saw a smaller increase, with forbearance levels rising to 0.29% from 0.27%.
While forbearance levels are still much lower than during the pandemic’s peak, Walsh noted that a weakening labor market is likely driving the uptick in forbearance requests.
“A weakening in the performance of servicing portfolios and an increase in forbearance requests are both likely given the softening observed in the labor market,” she added
The report highlighted the primary reasons why borrowers are seeking forbearance. Nearly 68.4% of homeowners in forbearance cited temporary hardships like job loss, divorce, disability, or the death of a family member. Another 25.9% attributed their need for forbearance to natural disasters, while only 5.7% of borrowers remain in forbearance due to ongoing financial impacts from COVID-19.
The stages of forbearance were also mixed. About 63.1% of loans were in the initial forbearance phase, while 20.7% were in an extension period. Additionally, 16.2% of borrowers had re-entered forbearance, including those who had received extensions.
Despite the rise in forbearance, the proportion of loans in good standing, those neither delinquent nor in foreclosure, remained stable. By the end of August, 95.76% of mortgage loans were current, a figure unchanged from July. However, this was 33 basis points lower than in August 2023, reflecting the broader impact of economic pressures.
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The states with the highest share of loans that were current included: Idaho, Washington, Colorado, Oregon, and California. On the other hand, Louisiana, Mississippi, Indiana, West Virginia, and Alabama recorded the lowest percentages of current loans.
For loans that had undergone repayment plans, deferrals, or modifications, the percentage of those loans still current decreased slightly to 73.00%, down from 73.51% the previous month.
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