As pandemic forbearance plans continue to expire, borrowers are continuing to choose loan modifications and other repayment options going forward.
According to Fitch Ratings’ [1] fourth-quarter 2021 Residential Mortgage Backed Servicer Metric Report, servicers reported a decline in loan modifications from 40% during the third quarter of 2021 to 24% in the fourth quarter. Repayment options, including cures, increased however from 11% in the third quarter to 26% in the fourth quarter.
Non-bank servicers reported loan modification volume increased slightly from 18% to 20% workout volume quarter over quarter while repayment options, including cures, rose only slightly to 7% from 6%.
Fitch said this may indicate that non-bank borrowers may not opt for full reinstatement, preferring instead to apply for alternative loan workout options, if the borrower qualifies.
“Concurrent with the increase in post-forbearance payment and loan workout activity, delinquency rates have seen a modest increase for non-bank servicers in the fourth quarter,” the report said. “Non-bank servicers reported an increase in the 60+ day delinquency category to 5% from 2% from the third quarter. Other delinquency metrics remained constant over the third and fourth quarters, with the exception of a decline in 90+ day past due accounts to 7% from 8% as reported by bank servicers.”
Servicers also reported that they have increased staffing levels due to escalating post-forbearance activity, and the use of temporary and contract employees has declined by 20% year-over-year. While factors such as loan portfolio size, technology sophistication and forecasting tools, among others, can influence these metrics, however, it is apparent that bank servicers have relied more heavily on temporary and contract employees and upstaffing to handle pandemic-related business volume.
“Loan modifications and other repayment options saw a significant increase as borrowers exited forbearance plans in the fourth quarter,” said Director Richard Koch [2]. “Bank and non-bank servicers are showing that post-forbearance workout activity consists of loan modifications and repayment options, including cures, while delinquencies remain low.”