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Loan Mod Volume Climbs as Forbearance Exits Continue

The latest U.S. RMBS Servicer Metric Report [1] examining the Q3 of 2021 from Fitch Ratings has found that non-prime loan modifications surged as forbearance plans expire across the sector.

Forbearance plans experienced a year-over-year drop to 43% from 87% of all loan workout options, while loan modifications quadrupled to 40% from 10% year-over-year as a percentage of loss mitigation portfolios for bank servicers.

“Loan modifications have seen significant increases as borrowers exited forbearance plans in the third quarter, and forbearances are now down to 43% of all loan workouts, as reported by bank servicers,” said Fitch Ratings Director Richard Koch [2]. “Bank servicers showed significant loss mitigation activity over the past year; non-bank servicers are reporting similar loss mitigation trends, albeit to a more modest degree.”

Fitch found that these results indicate that borrowers are exiting forbearance agreements in favor of loan modifications or paying current on accounts. Non-bank servicers, meanwhile, reported a 10% decrease year-over-year in forbearance plans, peaking in Q1 of 2021 at 71%, while tripling the percentage of loan modifications to 19% from 6.61% year-over-year.

According to the Fitch report, bank and non-bank servicers reported no movement in the 60-plus-day delinquency category; this remained constant at 2% throughout all three quarters of 2021. Serious delinquencies of 90-plus-day past due accounts as reported by bank and non-bank servicers continued a moderate quarterly decline over this period.

The Mortgage Bankers Association (MBA), in its latest Loan Monitoring Survey [3], reported that the total number of loans in forbearance nationwide decreased by 26 basis points from 1.67% of servicers' portfolio volume in the prior month to 1.41% as of December 31, 2021.

The MBA estimates that 705,000 U.S. homeowners are currently in forbearance plans.