Approximately 2.4 million mortgages are either in forbearance or past due; as an estimated 707,000 of those were still in forbearance as of February, according to the latest report from the Philadelphia Federal Reserve Bank [1].
Since most of these plans will expire in the next five months and protections against foreclosure expired on January 1, we are at a critical phase in this last stage of the housing market recovery from the pandemic.
In the latest monthly report from Philadelphia Federal, experts documented the first wave of mortgages that have been referred to foreclosure. Data shows that they have already picked up to pre-pandemic levels. We also provide details on the disposition of the 8.4 million mortgages that entered forbearance since the onset of the pandemic.
The good news here is that three-quarters are performing or paid off. Of the 964,000 mortgages that are seriously delinquent and not in forbearance, around half are on loss mitigation plans, but while they are in loss mitigation, nearly three-quarters are not paying. Minority and lower-income borrowers still have higher shares of nonperforming mortgages, increasing the importance of loss mitigation plans that are examined below.
As of February, an estimated 707,104 mortgage loans remain in forbearance. These include mortgages from the Federal Housing Administration (FHA), Veterans Affairs (VA), and the two government-sponsored enterprises (GSEs) — Fannie Mae and Freddie Mac — comprising most of the federally insured mortgages, along with the major private-sector mortgages from private-label mortgage-backed securities (PLMBS) and portfolio loans.
While 84% of all mortgages in forbearance are expected to expire by June 2022, GSE forbearances are now the dominant share. Their pandemic-related forbearance plans all have a June 2022 expiration, which explains the large number of expirations in June.
Unless mortgage servicers can successfully execute home-retention options in the coming months, many borrowers face the prospect of selling their homes or losing them to foreclosure. The FHA/VA have 272,645 mortgages still in forbearance, as their business is targeted at low- to moderate-income borrowers, who also have higher minority shares.
For borrowers who can resume regular payments, missed payments can be paid back in a lump sum, with a repayment plan or with a deferral or partial claim, in which missed payments are put into a noninterest-bearing subordinate lien to be paid back when the mortgage pays off.
For borrowers who cannot resume regular payments, loan modifications to reduce monthly payments are available with plans announced by the FHFA for GSE loans and HUD for FHA and VA loans. As shown in Appendix 2, 31% of borrowers have taken the first option thus far. Some borrowers will be unable — or choose not — to resume their regular mortgage payments.
Loan modifications that reduce the mortgage payment are available to these borrowers; 10% have already done so, with another 2% in transition for a modification (i.e., on a “trial modification”). To achieve this, the FHFA and HUD adopted payment-reduction targets of 20% and 25%.
To assess the effectiveness of the FHFA and HUD plans for FHA loans meeting their targets, Philadelphia Federal calculated the average declines in principal and interest (P&I) payments and for the full mortgage payments that include escrows, generally made up of principal, interest, taxes, and insurance (PITI). The three major federally insured programs are the GSE Flex Mod and the two FHA COVID-19 Recovery Modifications, starting with a 30-year mortgage, to be followed by one with a 40-year mortgage, which is still in development.
To read the full report, including charts and methodology, click here [2].