Majority of homeowners in forbearance have strong equity

Between May 26 and June 2, forbearance volumes in the United States decreased for the first time since the onset of the coronavirus crisis, Black Knight reported on Friday. And of the homeowners still in forbearance, the vast majority are carrying strong equity.

The weekly net decline of 34,000 forbearances was driven by a drop of 43,000 among government-backed mortgages, according to Black Knight. That fall was offset by an increase of 9,000 forbearances among loans in bank portfolios and private label securities.

“The first decline in the number of homeowners in active forbearance volumes is undoubtedly a good sign, particularly coming as it does on the heels of an overall trend of flattening inflow,” said Ben Graboske, data and analytics president for Black Knight.

Note that a large amount of forbearance volume still remains. There are now a total of 4.73 million homeowners in forbearance plans, representing 8.9% of all active mortgages and more than $1 trillion in unpaid principal. At the current level, mortgage services would need to advance a combined $3.3 billion per month to holders of government-backed mortgage securities on coronavirus-related forbearances, in addition to the $1.5 billion in property tax and homeowners insurance they would have to make on behalf of borrowers.

A deeper dive into forbearance numbers also suggests a potential upcoming rise in delinquencies. Among homeowners in active forbearance as of May 26, 52% had made their April mortgage payments, but just 22% of such borrowers had made their May payment. About 1.5% fewer mortgage holders made their May mortgage payment as of May 26 compared to the same time the prior month.

Graboske noted that such numbers should signal a shift among industry professionals from stemming the forbearance flow to managing downstream performance of forborne loans. The good news, he added, is that equity positions among homeowners in forbearance are “by and large strong.”

Just 9% of borrowers with forborne mortgages have current combined loan-to-value (CLTV) ratios at or above 90%, Black Knight reported. That is, just 9% have less than 10% equity in their homes, and just 1% are currently underwater on their home loans.

Even when taking into account borrowers who are both in forbearance and past due, just 10% — about 235,000, as of April 30 — have limited equity in their homes.

On the flipside, 80% of borrowers in forbearance have 20% or more equity in their homes. Sixty percent have over 30%, “providing homeowners, servicers and regulators with options for helping to avoid downstream foreclosure activity and default-related losses,” Graboske said.


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