Forbearance Rate Edges Closer to Pre-Pandemic Levels

According to the Mortgage Bankers Association’s (MBA) monthly Loan Monitoring Survey, the total number of loans now in forbearance nationwide decreased by six basis points from 0.39% of servicers’ portfolio volume in the prior month from 0.39% to 0.33% as of August 31, 2023. According to MBA’s estimate, 165,000 homeowners are currently in forbearance plans, and since March 2020, mortgage servicers have provided forbearance options to approximately 7.92 million borrowers.

By loan type, the MBA found that in August, the share of Fannie Mae and Freddie Mac loans in forbearance decreased one basis point from 0.20% to 0.19%. Ginnie Mae loans in forbearance decreased 15 basis points from 0.80% to 0.65%, and the forbearance share for portfolio loans and private-label securities (PLS) decreased six basis points from 0.45% to 0.39%.

“The forbearance rate is just eight basis points shy of where it was at the beginning of March 2020, which indicates that most homeowners have recovered from the pandemic,” said Marina Walsh, CMB, MBA’s Vice President of Industry Analysis. “While there was a monthly decline in the performance of post-forbearance workouts in August, overall mortgage servicing portfolios remain resilient. Compared to other credit types with weaker performance, the percentage of home mortgages that are performing is holding steady at a non-seasonally adjusted 96%.”

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 73.43% in August from 73.73% the previous month.

Loans in forbearance as a share of servicing portfolio volume as of August 31, 2023:

• Total: 0.33% (previous month: 0.39%)
• Independent Mortgage Banks (IMBs): 0.41% (previous month: 0.48%)
• Depositories: 0.27% (previous month: 0.30%)
• By reason, 60.4% of borrowers are in forbearance because of COVID-19. Another 7.2% are in forbearance because of a natural disaster. The remaining 32.4% of borrowers are in forbearance for other reasons such as a temporary hardship caused by job loss, death, divorce, disability, etc.
• By stage, 39.7% of total loans in forbearance are in the initial forbearance plan stage, while 51.6% are in a forbearance extension. The remaining 8.6% are forbearance re-entries, including re-entries with extensions.

Of the cumulative forbearance exits for the period from July 1, 2020, through August 31, 2023, at the time of forbearance exit:

• 29.5% resulted in a loan deferral/partial claim.
• 17.8% represented borrowers who continued to make their monthly payments during their forbearance period.
• 18.1% 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.
• 10.8% resulted in reinstatements, in which past-due amounts are paid back when exiting forbearance.
• 6.5% 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.
• Total loans serviced that were current (not delinquent or in foreclosure) as a percent of servicing portfolio volume (#) increased to 96.09% (on a non-seasonally adjusted basis) in August 2023 from 96.02% in July 2023.

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

• Washington
• Idaho
• Colorado
• Oregon
• California

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

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

As employment numbers generally play a key role in the direction of forbearance volume, the U.S. Bureau of Labor Statistics (BLS) reported that total nonfarm payroll employment increased by 187,000 in August, and the unemployment rate rose to 3.8%, as employment continued to trend up in healthcare, leisure and hospitality, social assistance, and construction, as employment in transportation and warehousing declined. The unemployment rate rose by 0.3 percentage point to 3.8% in August, and the number of unemployed persons increased by 514,000 to 6.4 million. Both measures are little different from a year earlier, when the unemployment rate was 3.7%, and the number of unemployed persons was six million.