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Who is Benefitting Most From the COVID-19 Deferral Program?

Who is taking advantage of those recently extended COVID-related forbearance options for federally backed mortgage loans?  Payment deferral programs offered by Fannie Mae and Freddie Mac have helped more than 300k homeowners, according to the Urban Institute's chartbook, a monthly reference guide for mortgage and housing market data that includes first-lien origination volume, the share of loans in serious delinquency or foreclosure, spreads on GSE risk transfer securities, and a special feature on loan-level GSE credit data (it can be accessed in full at urban.org [1]).

The report also dives into data about the types of borrowers taking advantage of the programs and how they plan to eventually exit.

The COVID-19 Deferral Program [2] is what the GSEs call their most-popular forbearance-exit strategy because it allows borrowers to revert to their original payment and move the forborne amount to the end of the mortgage with the mortgage term extended by the number of missed payments. According to Freddie Mac, the Payment Deferral is designed to provide relief to eligible borrowers who "have the financial capacity to resume making their monthly payments, but who are unable to afford the additional monthly contributions required by a repayment plan."

Since reaching a peak of 6.4% last May 2020, the GSE forbearance rate has dropped to 3.0% as of February 2021. About two-thirds of the Fannie- or Freddie-backed loans that entered forbearance have exited. Only a small number of those who have exited remain delinquent or in loss mitigation. Many delinquent borrowers—47% of those that went into GSE-loan forbearance—have exited using the COVID-19 Deferral Program, according to the chartbook.

The Urban Institute's researcher associates found that even though borrowers with the highest credit score account for half of the payment deferral program participants, the program, after adjusting for implied home values at origination, has disproportionately helped homeowners with lower FICO scores.

"The typical deferred amount while in forbearance is small, $6,000, accounting for 2.1% of
the implied home value at origination," the researchers noted. "This percentage likely
represents an upper bound since the value of most homes has increased since closing."

The stats could change, the researchers say, noting that as more time passes borrowers may be less likely to take advantage of the COVID-19 Deferral Program, and more likely to require a modification to retain their home.

"With the unemployment rate stagnating, and those who are not back on their feet choosing to extend, it is likely that future entrants into the program may have larger amounts of deferred payments relative to the borrowers currently in the program," according to the chartbook summary.

Early evidence suggests that the typical deferred amount should not significantly impact the housing equity accumulated by homeowners in the deferral program, but the institute says it will continue to monitor that.


(Full report) [1]