A new analysis by property analytics provider CoreLogic shows that nearly three-in-four loans (1.2 million loans) in forbearance reached the 18-month maximum limit as of the end of September.
Forbearance is when a mortgage servicer or lender allows a borrower to pause or reduce mortgage payments for a limited time while the homeowner regains financial footing.
Looking behind the curtain at CoreLogic’s figures, the analysis reveals that borrowers in forbearance who are behind on their payments generally have a much higher unpaid principal and larger monthly payments, in addition to other telling trends.
While forbearance exit plans will not be one-size-fits-all, the analysis points to some workout options borrowers should be considering to avoid the hotly debated foreclosure wave.
The first wave of borrowers to exit forbearance will be the largest. These are the borrowers who entered a Covid-19 forbearance plan in April 2020, shortly after the CARES Act was signed into law on March 27, 2020.
Selma Hepp, CoreLogic deputy chief economist, said that while a large number of forbearances are reaching their time limits, a quarter of borrowers in forbearance have continued their monthly payments. Also, with home price growth surging over the last two years, Hepp said many borrowers have sufficient equity in their home.
“Typical equity of those in forbearance is over $120,000 after subtracting missed payments,” said Hepp. “And with the mortgage rate spread for non-payment borrowers averaging over 1 percentage point, many could benefit from rate modification. At the end, based on the exits so far, only about 16% of forbearance exits are without a loss mitigation plan in place.”
The majority of homeowners are eligible for forbearance for a coronavirus-related financial hardship, according to the Consumer Financial Protection Bureau.
The Covid hardship forbearance applies to all federally backed and federally sponsored mortgages, including HUD/FHA, VA, USDA, Fannie Mae and Freddie Mac mortgage loans. This includes most mortgages.
Homeowners with federally backed loans have the right to ask for and receive a forbearance period for up to 180 days—which means they can pause or reduce their mortgage payments for up to six months. Additionally, borrowers can request an extension of forbearance for up to 180 additional days, for a total of 360 days.
If the mortgage is backed by Fannie Mae or Freddie Mac, borrowers can request up to two additional three-month extensions, up to a maximum of 18 months of total forbearance. But to qualify, they must have received their initial forbearance on or before February 28.
If the mortgage is backed by HUD/FHA, USDA or the Department of Veterans Affairs, borrowers can request a similar amount of extensions, for up to a maximum of 18 months of total forbearance. But to qualify, a borrower must have received initial forbearance on or before June 30, 2020.
Other mortgages may also provide similar forbearance options. If homeowners are struggling with payments, servicers are generally required to discuss relief options, whether or not a loan is federally backed.
In the early days of the pandemic, homeowners reported trouble getting through to servicers by telephone. Now, many mortgage servicers have increased their capacity to respond to customers. Some servicers also have websites for borrowers to understand their options and request forbearance.