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Report: Forbearances “Reach a Floor”

The Mortgage Bankers Association (MBA) has released its latest Loan Monitoring Survey as of December 31, 2022, and found that the total number of loans now in forbearance remained flat relative to the prior month at 0.70%. The MBA estimates that approximately 350,000 homeowners nationwide are in forbearance plans.

“For three consecutive months, the forbearance rate has remained flat—an indicator that we may have reached a floor on further improvements,” said Marina Walsh, CMB, MBA’s VP of Industry Analysis. “New forbearance requests and re-entries continue to trickle in at about the same pace as forbearance exits. The overall performance of servicing portfolios was also flat compared to the previous month, but there was some deterioration in the performance of Ginnie Mae loans.”

According to the MBA, by stage, 37.9% of total loans in forbearance were in the initial forbearance plan stage, while 49.3% were in a forbearance extension. The remaining 12.8% represented forbearance re-entries, including re-entries with extensions.

By loan type, the share of Fannie Mae and Freddie Mac (GSE) loans in forbearance decreased one basis point from 0.32% to 0.31% month-over-month, while Ginnie Mae loans in forbearance decreased one basis point from 1.46% to 1.45%. The forbearance share for portfolio loans and private-label securities (PLS) increased three basis points from 0.97% to 1%.

“Forbearance remains an option for struggling homeowners and its usage may continue, especially if unemployment increases as expected,” added Walsh. “MBA is forecasting for the unemployment rate to reach 5.2% in the second half of 2023, up from its current level of 3.5%.”

Despite ending the year on a stronger-than-anticipated footing, the economy is still expected to slip into a modest recession beginning in the first half of 2023, according to the January 2023 commentary from the Fannie Mae Economic and Strategic Research (ESR) Group. The ESR Group predicts Q4/Q4 GDP growth for 2023 to be negative 0.6%, one-tenth lower than its previous forecast.

“There are economic signals pointing to recession but also signs that a ‘soft landing’ may be in the offing,” said Douglas G. Duncan, SVP and Chief Economist for Fannie Mae. “In our view, the balance still suggests a modest recession, particularly if the Federal Reserve maintains its focus on labor market tightness. While limited and tentative signs of a slowing labor market are appearing, overall, labor remains robust. The market sees the Federal Reserve easing in the second half of the year, which can be interpreted either as a view that the recession is forthcoming or that the slowdown in inflation will lead to a less restrictive monetary posture. If the latter occurs, the lower accompanying rates will likely set the stage for a pickup in housing activity going into 2024, as can be seen in our latest forecast. However, if the market is wrong–and the Federal Reserve does as it has stated it will do and holds the federal funds target at the terminal rate longer to ensure no inflation resurgence–then the accompanying rate decline and associated revival in housing activity will likely be delayed. In either case, we expect 2023 to be a slow year for the housing market.”

Total completed loan workouts from 2020 and onward (repayment plans, loan deferrals/partial claims, loan modifications) that were current as a percent of total completed workouts decreased to 75.92% in December from 76.89% the previous month.

Of the cumulative forbearance exits for the period from June 1, 2020, through December 31, 2022, at the time of forbearance exit:

  • 29.6% resulted in a loan deferral/partial claim.
  • 18.1% represented borrowers who continued to make their monthly payments during their forbearance period.
  • 17.4% represented borrowers who did not make all of their monthly payments and exited their forbearance plan without a loss mitigation plan in place yet.
  • 16% resulted in a loan modification or trial loan modification.
  • 10.9% resulted in reinstatements, in which past-due amounts are paid back when exiting forbearance.
  • 6.6% resulted in loans paid off through either a refinance or by selling the home.
  • The remaining 1.3% resulted in repayment plans, short sales, deed-in-lieus, or other reasons.

The five states reporting the highest share of loans that were current as a percent of servicing portfolio included:

  • Washington
  • Idaho
  • Colorado
  • Utah
  • Oregon

The five states recording the lowest share of loans that were current as a percent of servicing portfolio included:

  • Louisiana
  • Mississippi
  • West Virginia
  • Indiana
  • New York

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.

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