Mortgage Forbearances Fade Into the Sunset

In the first months of the COVID-19 pandemic, economists and lenders braced for a wave of delinquencies and loan defaults.

By the fall of 2020, loan delinquencies and write-offs were down, but economists and lenders worried that the coming wave was just being suppressed by loan forbearance programs and government payments to households to buffer the economy.

Now, two years after the pandemic was declared in March 2020, it looks like the loan quality crisis was a problem that never materialized.

Further evidence arrived Monday when the Mortgage Bankers Association reported that 1.18% of first mortgages were in forbearance as of Feb. 28, representing about 590,000 homeowners in forbearance plans.

The rate was down from 1.30% a month earlier and 8.53% at its peak in May 2020. It has been falling steadily now for 21 months.

Perhaps more pointedly, the MBA survey, which was launched as a weekly series early in the pandemic, has now shifted to a monthly report.

Marina Walsh, the MBA’s vice president of industry analysis, said the survey showed positive results by two other measures:

1. The percentage of borrowers current on their mortgage payments increased to almost 95% – 350 basis points higher than a year ago.

2. The percentage of borrowers with existing loan workouts who were current on their mortgage payments improved for the first time since June 2021.

“The lower forbearance rates and higher performance rates for both total borrowers and borrowers in workouts are especially favorable given that there is typically a dip in mortgage performance in February because of the shortened number of days to make a payment,” Walsh said.

“We can credit several factors to the improved performance, including the availability of viable loss mitigation options, low unemployment that is now below 4.0%, strong wage growth and rising home equity,” she said.

Delinquencies were also down. CUNA found just 0.52% of the value of the total credit union loan portfolio was 60 days or more delinquent on Jan. 31, down from 0.59% a year earlier and 0.64% on the eve of the pandemic in February 2020.

The MBA survey found 30.1% of total loans in forbearance were in the initial forbearance plan stage, while 57.0% were in a forbearance extension. The remaining 12.9% were forbearance re-entries, including re-entries with extensions.

Among all households leaving a forbearance plan from June 1, 2020, through Feb. 28, 2022, the MBA found the following statuses at the time of forbearance exit:

• 29.2% resulted in a loan deferral or partial claim.
• 19.1% represented borrowers who continued to make their monthly payments during their forbearance period.
• 17.0% represented borrowers who did not make all of their monthly payments and exited forbearance without a loss mitigation plan in place yet.
• 15.2% resulted in a loan modification or trial loan modification.
• 11.5% resulted in reinstatements, in which past-due amounts are paid back when exiting forbearance.
• 6.8% resulted in loans paid off through either a refinance or by selling the home.
• The remaining 1.2% resulted in repayment plans, short sales, deed-in-lieus or other reasons.