MBA provides some relatively good news for lenders
In the fifth weekly survey of its kind, Mortgage Bankers Association found that forbearance activity in the U.S. increased again between April 27 and May 3.
The survey collected data on 38.3 million loans serviced as of May 3, roughly 77 percent of the first mortgage servicing market. 52 servicers participated in the survey, including 21 depositories and 29 independent mortgage companies.
MBA found that the percentage of total loans in forbearance among respondents increased from 7.54 percent to 7.91 percent. For the IMB sample, the figure rose from 7.13 percent to 7.54 percent. Depositories saw their percentage of loans in forbearance creep up from 8.41 percent to 8.75 percent.
The figures continue moving in the wrong direction, but their momentum has slowed considerably, particularly when compared to the surge in forbearance activity seen four weeks ago.
Justin Parker, senior vice president of treasury and capital markets at RCN Capital, says the decreases laid out by MBA align with what his company is experiencing.
“We have also seen a decline in the growth of requests,” he says. “The reality is that once all of the COVID-19 chaos began and government moratoriums were messaged, it was natural to see a large flow of requests come through – even if the borrower didn’t absolutely need it. Since the shock of the economic impact we experienced, there has been more and more stability, which has allowed the growth rate of requests to stabilize as well.”
Mike Frantatoni, MBA’s senior vice president and chief economist, acknowledge the slower pace of forbearance requests, but he doesn’t feel the industry is out of the woods just yet.
“The dreadful April jobs report showed a decline of more than 20 million jobs, and a spike in the unemployment rate to the highest level since the Great Depression,” Frantatoni said in comments accompanying the survey results. “It will not be surprising if the forbearance numbers continue to rise. As we anticipated, FHA and VA borrowers have been most impacted by the job losses thus far, with the share of Ginnie Mae loans in forbearance at almost 11 percent.”
Regarding IMB mortgages, Ginnie saw its percentage of loans in forbearance increase from 9.39 percent to 9.97 percent, while Fannie and Freddie’s rose from 4.82 percent to 5.04 percent. MBA’s “Other” category (PLS, Portfolio, etc.), saw the biggest increase, rising from 10.05 percent to 10.7 percent.
The weekly increases seen in the depository sample are equally moderate:
- Ginnie: 12.92 percent of loans in forbearance (was 12.53 percent)
- Fannie/Freddie: 7.19 percent in forbearance (was 6.96 percent)
- “Other” (PLS, Portfolio, etc.): 8.82% in forbearance (was 8.22%)
Odeta Kushi, deputy chief economist for First American Financial Corporation, says the decrease in the rate of forbearance requests should be taken as the good news it is. But the ongoing challenges related to mass unemployment means that the bottom, in terms of homeowner struggles, has yet to reveal itself.
“This is a struggling labor market, so I don’t necessarily expect forbearance numbers to absolutely plummet,” Kushi says. “But I think it’s good news that we’re seeing the pace of new requests slow down, and that seems to be coinciding pretty closely with the fact that the purchase market has been on the rise for the past three weeks,” she says.
Much of the concern generated by the colossal number of loans in forbearance – 3.8 million as of last week – is the potentially catastrophic fallout if a high percentage of them turn sour. Kushi, while emphasizing the too-early-to-quantify nature of the damage COVID-19 is inflicting on the U.S. economy, feels that the level of future delinquencies should be held in check.
“While delinquencies could increase, it won’t be to the level observed during the last recession,” she says. “A big part of that is because there’s this massive equity buffer in the housing market that really didn’t exist in previous recessions.”
Americans are currently enjoying record levels of home equity. Kushi explains that on the eve of the Great Recession, the nationwide loan-to-value ratio was 54 percent. Prior to the COVID-19 outbreak, it was at a record low of 36 percent.
“It’s a really large equity buffer that can enable homeowners to stay in their homes longer,” she says. “I think that will really prove to be beneficial in this downturn.”
