New analysis from real estate analytics provider CoreLogic shows that nearly three in four loans (1.2 million loans) in forbearance reached the maximum limit of 18 months at the end of September.
Forbearance is when a mortgage agent or lender allows a borrower to suspend or reduce mortgage payments for a limited time while the owner regains financial strength.
Looking behind the curtain at CoreLogic’s numbers, the analysis reveals that forbearance borrowers who are late in their payments typically have much higher principal delinquencies and larger monthly payments, in addition to other telling trends.
While forbearance exit plans are not uniform, the analysis points to some workout options borrowers should consider to avoid the highly controversial foreclosure wave.
The first wave of borrowers to come out of forbearance will be the largest. These are the borrowers who signed a Covid-19 abstention plan in April 2020, shortly after the enactment of the CARES law on March 27, 2020.
Selma Hepp, deputy chief economist at CoreLogic, said that while a large number of forbearers are reaching their time limits, a quarter of forbearers have continued with their monthly payments. Additionally, with the strong growth in home prices over the past two years, Hepp said many borrowers have sufficient equity in their homes.
“The typical equity of those withholding is greater than $ 120,000 after subtracting missed payments,” Hepp said. “And with the mortgage rate spread for defaulted borrowers averaging over 1 percentage point, many could benefit from a rate change. In the end, based on the exits so far, only about 16% of the forbearance exits are without a loss mitigation plan in place. “
The majority of homeowners are eligible for forbearance for financial hardship related to the coronavirus, according to the Consumer Financial Protection Bureau.
Covid Hardship forbearance applies to all federally backed and sponsored mortgages, including HUD / FHA, VA, USDA, Fannie Mae and Freddie Mac mortgages. This includes most mortgages.
Homeowners with federally guaranteed loans are eligible to apply for and receive a forbearance period of up to 180 days, which means they can suspend or reduce their mortgage payments for up to six months. In addition, borrowers can request an extension of forbearance for up to an additional 180 days, for a total of 360 days.
If the mortgage is guaranteed by Fannie Mae or Freddie Mac, borrowers can request up to two additional three-month extensions, up to a maximum of 18 months for full forbearance. But to qualify, they must have received their initial abstention by February 28.
If the mortgage is guaranteed by the HUD / FHA, USDA, or the Department of Veterans Affairs, borrowers can request a similar amount of extensions, up to a maximum of 18 months for full forbearance. But to be eligible, a borrower must have received an initial forbearance by June 30, 2020.
Other mortgages may also offer similar forbearance options. If homeowners are struggling to pay, service officers are usually required to discuss relief options whether or not a loan is federally guaranteed.
At the start of the pandemic, homeowners reported difficulty reaching services by phone. Today, many mortgage agents have increased their ability to respond to clients. Some providers also have websites that allow borrowers to understand their options and request forbearance.