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What Shifts in Forbearance Rates Mean

GSE loansLoans reportedly are evading forbearance, according to the most recent Forbearance and Call Volume Survey, which showed that the total number of loans currently in forbearance toppled from 5.54% of servicers' portfolio volume in the prior week to 5.48% as of December 6.

A total of 2.7 million homeowners are in forbearance plans, according to MBA's estimate.

 Meantime, the share of Fannie Mae and Freddie Mac Loans in forbearance lost their bearings, dropping to 3.26%, a hike of 8 basis-points. As for Ginnie Mae? Loans in forbearance nosedived 21 basis points to 7.68%, while there was an uptick of 19 basis points to 8.89% in the forbearance share for portfolio loans and private-label securities. Among independent mortgage bank servicers, there was a drop off of 4 basis points from the week before to 5.98%. The percentage of loans in forbearance for depository servicers receded 10 basis points from the previous week to 5.38%.

"The share of loans in forbearance decreased in the first week of December. However, more borrowers sought relief, with new forbearance requests reaching their highest level since the week ending August 2, and servicer call volume hitting its highest level since the week ending April 19," said Mike Fratantoni, MBA's SVP and Chief Economist. "Compared to the last two months, more homeowners exiting forbearance are using a modification— a sign that they have not been able to fully get back on their feet, even if they are working again."

Added Fratantoni, "The latest economic data is showing a slowdown, particularly an increase in layoffs and long-term unemployment. Coupled with the latest surge in COVID-19 cases, it is not surprising to see more homeowners seeking relief."

By stage, 18.72% of total loans in forbearance are in the initial forbearance plan stage; 78.72% are in a forbearance extension.

Forbearance data might not be as daunting as it looks at first blush. That is, according to an article by Bloomberg.com, which points to the MBA data showing that, as of September 6, as many as 25% of all homeowners in forbearance plans have continued to make their monthly mortgage payments. That means that of 3.4 million households in forbearance at that point, about 820,000 had not missed a payment.

In a Bloomberg interview, Fratantoni called this "one of the most surprising aspects of this entire episode."

He added that he had seen that share drop over the months as borrowers exited forbearance.

What does this indicate? Bloomberg author Christopher Maloney (a market strategist and former portfolio manager) suggests it is “strategic forbearance, with many homeowners taking on the option, just in case."

He broke it down: "Of the Ginnie Mae borrowers in forbearance, 23.7% are current. For conventional borrowers it’s 20.6%, and for those sitting on banks’ balance sheets it’s 28.6%," Maloney pointed out. "This is important, as mortgages which continue to pay are not going to be bought out by servicers, and for mortgage investors buyouts are just prepayments by another name. With loans bought out from pools at par, this can weigh on portfolio performance, especially when much of the mortgage universe is trading at a premium."

About Author: Chuck Green

Chuck Green has contributed to the Wall Street Journal, Washington Post, Los Angeles Times, San Francisco Chronicle, Chicago Tribune and others covering various industries, including real estate, business and banking, technology, and sports.
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