Forbearance Rate Falls Across All Investor Types in February

The Mortgage Bankers Association’s (MBA) monthly Loan Monitoring Survey revealed that the total number of loans now in forbearance decreased by four basis points from 0.64% of servicers’ portfolio volume in the prior month to 0.60% as of February 28, 2023. The MBA estimates that approximately 300,000 homeowners are still in forbearance plans.

“The forbearance rate decreased for both independent mortgage bank and depository servicers across all investor types in February,” said Marina Walsh, CMB, MBA’s VP of Industry Analysis. “Even with the fewer days in the month–which often causes a drop in timely monthly payments–overall servicing portfolio performance declined only slightly to 95.8%, while performance of post-forbearance workouts stayed essentially flat at 76%.”

The share of Fannie Mae and Freddie Mac (GSE) loans in forbearance decreased two basis points from 0.30% to 0.28%. Ginnie Mae loans in forbearance decreased nine basis points from 1.37% to 1.28%, and the forbearance share for portfolio loans and private-label securities (PLS) decreased five basis points from 0.83% to 0.78%.

By stage, 34.9% of total loans in forbearance were in the initial forbearance plan stage, while 51.8% were in a forbearance extension. The remaining 13.3% reported were forbearance re-entries, including re-entries with extensions.

Of the cumulative forbearance exits for the period from June 1, 2020, through February 28, 2023, at the time of forbearance exit:

• 29.6% resulted in a loan deferral/partial claim.
• 18% represented borrowers who continued to make their monthly payments during their forbearance period.
• 17.6% represented borrowers who did not make all of their monthly payments and exited forbearance without a loss mitigation plan in place yet.
• 16.1% 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 1.2% resulted in repayment plans, short sales, deed-in-lieus or other reasons.

“The February results on mortgage performance is welcome news, given recent increases in delinquencies for other credit types such as credit cards and auto loans,” added Walsh. “However, with the possibility of a recession this year, we may see some deterioration in performance–particularly for government loans.”

Regionally, the five states with the highest share of loans that were current as a percent of servicing portfolio:

• Washington
• Idaho
• Colorado
• California

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

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

The U.S. Bureau of Labor Statistics (BLS) reported that for the month of February, total nonfarm payroll employment rose by 311,000, and the unemployment rate edged up to 3.6%. Notable job gains were reported in leisure and hospitality, retail trade, government, and health care. Employment declined in information and in transportation and warehousing.“The unemployment rate increased to 3.6%, partly driven by another increase in labor force participation, but remained well below historical averages. We expect the unemployment rate to increase over the course of this year as the economy cools, reaching 4.8% at the end of the year,” said MBA VP and Deputy Chief Economist Joel Kan. “The housing market typically benefits from strong employment conditions, but as monetary policy has tightened to combat inflation, bringing about higher rates and tighter financial conditions, homebuyers have pulled back over the past year. We expect the economy to go into a mild recession this year, and with that a cooling in home prices and lower mortgages rates, which should help affordability conditions and bring a gradual recovery in housing activity.”