Forbearances continue to fall; more big improvement ahead?

Industry data is showing that more and more borrowers continue to leave forbearance plans, with the Mortgage Bankers Association (MBA) reporting that the total number of loans in forbearance fell by 11 percentage points as of July 4.

According to the MBA, 3.76% of servicers’ portfolio volume were in forbearance as of that date — down from 3.87% the prior week, when active forbearance plans fell under 2 million for the first time since March 2020. The seven-day period ending July 4 marked the 19th straight week of declining forbearance, leaving roughly 1.9 million homeowners still in forbearance plans, per an MBA estimate. 

“Forbearance exits increased in the week of the July 4th holiday to the fastest pace since early April,” said Mike Fratantoni, the MBA’s senior vice president and chief economist. “New requests stayed very low, resulting in a large drop in the share of loans in forbearance, particularly for Ginnie Mae loans, which also continue to be impacted by buyouts of delinquent loans. These loans are tracked as portfolio loans after a buyout.”

Ginnie Mae loans in forbearance, as Fratantoni noted, saw a substantial drop, falling to 4.78% during the week ending July 4, down from 5.10% one week prior.

The MBA’s numbers are generally consistent with figures recently reported by Black Knight, which tracked roughly 1.9 million loans in forbearance as of July 6. Since the same time last month, forbearances are down by 254,000 (12%), mirroring April’s 12% rate of forbearance decline, according to Black Knight data.

The big recent drops, Black Knight said, have been driven by the high volume of early forbearance entrants reaching their plans’ 15-month review for extension or removal. April saw a high rate of forbearance decrease with many plans hitting 12-month review windows in the last few weeks of March, and the trend appears to be repeating itself so far: Of more than 325 plans reviewed recently, nearly two-thirds resulted in exits.

Per Black Knight, that’s the highest weekly exit rate in over six months, as well as the highest weekly removal volume since the first wave of forbearance plans went through their 12-month reviews. And with another 400,000 plans set for review over the next 30 days, much potential exists for even more improvement of the forbearance rate.

While the news of dwindling forbearance is welcome, Fratantoni did caution that borrowers who leave forbearance plans aren’t quite out of the woods yet.

“The delinquency rate slightly increased [in June] for homeowners who have completed a workout,” he said. “Borrowers who are exiting forbearance now are likely to have been in relief for over a year, with almost 60% of borrowers in forbearance extensions of longer than 12 months. These borrowers may face more challenges getting back to making regular payments.”


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