"Forbearance as a loss mitigation option is diminishing"
“Forbearance as a loss mitigation option is diminishing,” according to the Mortgage Bankers Association (MBA).
As of December 31, only 0.23% of servicers’ portfolio volumes were in forbearance, down from 0.26% in the previous month, MBA’s latest survey showed. This drop signals a potential shift in the mortgage landscape, with only an estimated 115,000 homeowners currently in forbearance plans.
The share of Ginnie Mae loans in forbearance decreased from 0.47% to 0.39%, while Fannie Mae and Freddie Mac loans saw a marginal decrease, from 0.16% to 0.15%. Portfolio loans and private-label securities (PLS) also experienced a decline in forbearance share, from 0.30% to 0.27%.
“While forbearance is a powerful tool for delinquency surges resulting from natural disasters or major disruptions such as a pandemic, today’s borrowers are not experiencing widespread financial distress,” said Marina Walsh, VP of industry analysis at MBA. “The overall performance of servicing portfolios – particularly government loans – declined in December. Factors such as seasonality, a changing labor market, resumption of student loan payments, and the rise in balances on other forms of consumer debt are likely at play.”
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Walsh anticipates an increase in the unemployment rate to 4.5% by the end of 2024, up from 3.7% at the end of 2023, which could be a leading indicator of future mortgage performance.
Additional findings from the survey include:
- Independent Mortgage Banks (IMBs) reported a decrease in loans in forbearance from 0.32% to 0.27%. Meanwhile, depositories dropped from 0.23% to 0.22%.
- The reasons for forbearance include job loss, death, divorce, or disability (61.2%), COVID-19 (26.8%), and natural disasters (12%).
- The majority of loans in forbearance (51.7%) are in the initial plan stage, with 31.5% in extension and 16.8% in re-entries, including extensions.
- The most common outcomes at forbearance exit include loan deferral/partial claim (29.4%) and continuation of regular payments (17.7%).
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