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Mortgages in Forbearance Hit 6.99%. Here's More on What Forbearance Means to a Distressed Homeowner

[Updated: Dec 11, 2020 ] May 01, 2020 by Marc Rapport
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The number of Americans unable to pay their mortgages continues to grow along with soaring joblessness.

The Mortgage Bankers Association (MBA) said this week that the number of loans in forbearance in mortgage servicers' portfolios grew to 6.99%, up 16.7% from the already-devastating 5.99% the week before.

That means that about 3.5 million borrowers have been granted varying degrees of formal relief that will let them catch up with their payments later.

"Forbearance requests fell relative to the prior week but remain roughly 100 times greater than the early March baseline," MBA senior vice president and chief economist Mike Fratantoni said in this week's Forbearance and Call Volume Survey report.

And while the raw number of new unemployment claims fell this week from last, new claims were still in the millions this week. More than 30 million Americans have joined the rolls of the jobless in the past several weeks since the COVID-19 pandemic began, killing Americans by the tens of thousands while shutting down much of the U.S. economy.

GSEs add to relief efforts, FHA and VA lead in forbearances

The MBA survey found that by investor type, Ginnie Mae had the largest percentage of loans in forbearance at 9.73%. For government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, it was 5.46%. Forbearances were at 7.87% for depository servicers (the traditional banks and credit unions, for instance, that are holding loans in their own portfolios) and 6.52% for independent mortgage bank servicers.

"For FHA and VA borrowers, the share of loans in forbearance is even higher, at 10%," Fratantoni said in the report.

The Federal Housing Finance Agency (FHFA) has made a series of moves to help troubled borrowers and the troubled housing market, including barring foreclosures on loans the GSEs back, allowing the GSEs to buy some mortgages already in forbearance, and requiring servicers to cover only four months of nonpayment by borrowers. Then, this week, the FHFA clarified that under the CARES Act borrowers are not required to catch up with their payments in one lump sum after their forbearance ends.

Eventually, the bill comes due

But, as Emanuel Santa-Donato, director of capital markets for online mortgage lender, points out, they do have to be paid back eventually.

Here, Santa-Donato -- whose company says it received $9 billion in application volume in April after funding $1 billion in loans in March -- lays out five pieces of advice for homeowners who are considering or have gone into forbearance:

  1. There's no need to request a forbearance if you're able to pay your mortgage. The first thing homeowners should do is determine whether they can in fact still pay their mortgage. If they have had a hardship that impacts their ability to repay the loan, then forbearance is an appropriate option.
  2. If you're still unable to pay your mortgage after the initial three-month period, you can negotiate an extension. The CARES Act says homeowners and lenders can negotiate a forbearance extension in three- to six-month increments or arrive at other loan term modifications. That's if the borrower's coronavirus-caused hardship continues.
  3. Mortgages in forbearance do not need to be paid back all at once, but forbearance isn't forgiveness. You still owe. The payment pause is temporary. But, as the FHFA said this week, you don't have to pay it back in a lump sum.
  4. Understand and follow your payment timeline or it may impact your credit. Pursuing forbearance should not impact a credit score. But not getting an extension or modification and/or not resuming payments after those end? That can damage a score.
  5. Forbearance can affect refinancing. Fannie Mae and Freddie Mac require that a borrower have no more than one missed payment in the prior year to refinance through them. Forbearance doesn't change that.

Ending on a cautiously positive note

Fratantoni, the MBA economist, said to watch for forbearance requests to jump again as May payment dates come and go.

But he did offer this somewhat hopeful statement: "The combination of stimulus payments, expanded unemployment insurance benefits, further fiscal and monetary actions, and states reopening will hopefully begin to stabilize forbearance requests and the overall economy."

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