As share of mortgages in forbearance drops, many borrowers still face an uncertain future

The Mortgage Bankers Association is reporting that the percentage share of mortgages in forbearance has dropped from 6.93% the prior week to 6.87% as of September 20. This is the lowest level reported since the middle of April. More and more people are exiting forbearance, continuing a slow and steady drop that began in May.

The share of Fannie Mae and Freddie Mac backed mortgages in forbearance has declined more steeply than the average of all servicing portfolios from 4.55% to 4.46%. This continues the trend. Mortgage forbearance across all portfolios skyrocketed in March from less than 0.25% to over 8%, when the COVID-19 pandemic and economic lockdowns shocked the economy. But forbearance in Fannie/Freddie backed loans has been consistently lower than the average by about 2 percentage points. This quicker return to normalcy in Fannie/Freddie seems to be driving the overall drop in mortgage forbearance.

On the other hand, the percent of Ginnie Mae backed mortgages in forbearance is at 9.15%, while portfolio and private label securities (PLS) loans are at 10.52%. These numbers are relatively stable across the last few weeks.

The Ginnie Mae portfolio includes many FHA and VA mortgages, often taken out by less advantaged borrowers. These home owners are more likely to be first-time buyers and have lower credit. FHA and VA mortgage requests have, in fact, gone up slightly in the last week, signaling that not all types of borrowers are experiencing the recovery to the same degree if at all.

Continuing uncertainty in the job market, especially lower and entry level jobs, has driven a lot of the continuing caution in this area. Across all the mortgages currently in forbearance, 68.37% have been extended from the original terms. Sharper declines in forbearance may have to await a broader economic recovery. Of those homeowners who have exited forbearance, many are opting to delay paying the forborne amount.

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