It seems like you can’t flip on the news, turn on the radio, or navigate to your preferred news site without hearing the term – forbearance. But what is forbearance and why is everyone talking about it?
Simply put, forbearance is when a mortgage servicer or lender allows borrowers to temporarily pay their mortgage at a lower payment or pause paying their mortgage. However, the borrower will have to pay the payment reduction or the paused payments back later.
Forbearance is closely associated with the Coronavirus Aid, Relied, and Economic Security (CARES) Act. The CARES Act, set in place back in March, provides relief for struggling homeowners, but these protections are likely coming to an end. Up until now, they allowed homeowners six months to recuperate after job loss or pay cuts due to COVID-19, now homeowners must decide whether or not to reapply for another six months of forbearance (if they are eligible) or establish a payment plan with their lender.
How many people are currently in forbearance?
A compelling report from the Mortgage Bankers Association cites the latest forbearance and call survey, which states that loans now in forbearance have decreased by 6 basis points as of September 20, 2020. That’s a decrease from 6.93 percent to 6.87 percent, the lowest since April. However, there are varying decreases of loans in forbearance depending on the loan originator, so be sure to check out the article for more details.
So, the MBA report indicates that forbearances are declining, but a quote from MBA’s Senior Vice President and Chief Economist, Mike Fratantoni, reveals forbearance applications are actually on the rise.
“However, the overall picture is still somewhat of a mixed bag,” Frantantoni said. “The recent uptick in forbearance requests, particularly for those with FHA or VA loans, is leaving the Ginnie Mae share elevated, as the pace of new requests meets or exceeds the pace of exits.”
It’s important though to not just look at the numbers reported for those currently in forbearance. We also know that 400,000 mortgage borrowers are needlessly delinquent. Unfortunately, this is because many homeowners don’t know that they may be eligible for forbearance or have some notion about how forbearance will affect them in the future that prevents them from discussing option with their mortgage lenders.
What are the current unemployment rates?
Taking a look at “The Employment Situation” released by the Bureau of Labor Statistics covering September 2020. In September, the unemployment rate declined by 0.5 percentage points to 7.9 percent. That’s a decrease of 1 million unemployed people. Those on a temporary layoff have decreased by 1.5 million (now totaling 4.6 million). All this is a promising sign for the borrowers, the housing market, and the economy as a whole.
So, are we actually recovering?
The numbers would suggest that we are recovering, albeit slowly as both unemployment and forbearances are decreasing each month. It has been noted though that FHA and VA loan holders have increased their applications to enter forbearance.
As far as forbearances are concerned, many have been able to return to their normal monthly mortgage payments instead of needing to re-apply for another 6 months of forbearance. Some homeowners are also entering a deferral plan and choosing to pay the forborne amount at the end of their loans, according to Mike Fratantoni.
While unemployment has decreased, the job market is still rightfully considered unstable. This will persuade many to apply for an extension of their forbearance for the additional 6 months that they are allowed, thus slowing the decline of homeowners exiting forbearance. It looks like it will be a slow road to the old normal.
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