Navigating the Shifting Landscape of Mortgage Forbearance
The Mortgage Bankers Association's (MBA) latest Loan Monitoring Survey, covering the period from October 1 to October 31, 2023, provides a comprehensive snapshot of the current state of forbearance in the mortgage market.
Mortgage forbearance is a process established for borrowers that can help tremendously if they are struggling to pay their mortgage. Servicers and lenders can arrange for their borrowers to temporarily pause payments or make smaller payments toward their mortgage. The borrowers who take advantage of this process will still owe the entire amount of the original mortgage and will have to pay the difference at a later time.
Key findings from the Loan Monitoring Survey indicate a decrease in the total number of loans in forbearance and a shift in the reasons behind homeowners seeking forbearance. These trends make it quite evident that the mortgage landscape is evolving. This blog post delves into the survey's key insights, shedding light on the trends and challenges facing homeowners, lenders, and the broader housing market.
Decrease in Forbearance Numbers:
One of the noteworthy findings from the survey is there has been a decrease in the total number of loans in forbearance, dropping from 0.31% in the previous month to 0.29% as of October 31, 2023. This decrease is a signal of a potential economic stabilization with homeowners being able to afford their mortgages at higher rates going into the holiday season.
Reasons for Forbearance:
An intriguing shift highlighted in the survey is the change in the primary reasons for seeking forbearance. For the first time since MBA began tracking in October 2022, temporary hardships such as job loss, death, and divorce now represent a larger share (45.4%) than COVID-19-related hardships (43.3%). This shift is expected to continue as Fannie Mae and Freddie Mac phase out COVID-19 as a reason for delinquency starting in November 2023.
Distribution by Loan Type:
Examining forbearance across different loan types, the survey indicates that the share of Fannie Mae and Freddie Mac loans in forbearance remained unchanged at 0.18%, while Ginnie Mae loans decreased by 5 basis points to 0.52%. Additionally, the forbearance share for portfolio loans and private-label securities (PLS) decreased by 3 basis points to 0.32%.
Stage of Forbearance:
Breaking down forbearance by stage, 45.1% of total loans are in the initial forbearance plan stage, 47.0% are in a forbearance extension, and the remaining 7.9% are forbearance re-entries, including re-entries with extensions.
Forbearance Exits and Loan Workouts:
The survey sheds light on the outcomes of forbearance exits, with 29.4% resulting in a loan deferral/partial claim and 17.7% representing borrowers who continued to make their monthly payments during their forbearance period. Notably, 18.3% exited forbearance without a loss mitigation plan in place, while 16.1% resulted in a loan modification or trial loan modification. These numbers provide insights into the varied paths homeowners take post-forbearance.
The survey also highlights regional variations in loan performance, with states like Washington, Colorado, Idaho, Oregon, and California showing the highest share of loans that were current. Conversely, Louisiana, Mississippi, Indiana, West Virginia, and New York are identified as the five states with the lowest share of current loans.
As the housing market continues to adapt to changing circumstances, Covered Insurance is here to help your borrowers navigate these shifts. We understand that the easiest way for your customers to avoid needing mortgage forbearance and reducing their mortgage payments is by finding cheaper homeowners insurance. Reach out to a member of Covered’s Partnership Team to discuss ways that you can help prevent your borrowers from needing mortgage forbearance and deliver financial well-being. Contact Us Here
For those interested in a more in-depth analysis, the full report can be accessed on the MBA's website at www.mba.org/loanmonitoring.