Mortgage Forbearance Rate Hits 7%, Fannie/Freddie May Offer Partial Claim to Repay

Last updated on May 14th, 2020
Mortgage Forbearance Rate Hits 7%, Fannie/Freddie May Offer Partial Claim to Repay

Here we go again – the latest Forbearance and Call Volume Survey from the Mortgage Bankers Association’s (MBA) revealed that the total number of loans in forbearance increased from 5.95% to 6.99% as of April 19th, 2020.

That means roughly 3.5 million homeowners have now asked for their mortgage payments to be put on hold due to the coronavirus epidemic (COVID-19).

It’s a 17.48% increase from a week earlier, nowhere near the first couple weekly surges, but consider that just 0.25% of all loans were in forbearance during the week of March 2nd.

As I mentioned a week ago, the percentage gains won’t sound as devastating going forward, but the number of Americans in forbearance plans keeps rising, putting a lot of stress on themselves and loan servicers.

Share of FHA and VA Loans in Forbearance Nears 10%

  • Ginnie Mae forbearance rate up to 9.73% from 8.26%
  • Fannie/Freddie forbearance rate climbs to 5.46% from 4.64%
  • Other loans (private-label securities & portfolio loans) forbearance rate up to 7.52% from 6.43%
  • Forbearance rate 6.52% for independent nonbanks, 7.87% for depositories

When broken down, FHA loans and VA loans continue to exhibit the worst forbearance rates relative to other home loan types.

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Again, this might be attributable to their lower credit score requirements, and higher loan-to-value ratios (LTVs), with the VA requiring no down payment whatsoever.

These Ginnie Mae-backed mortgages had a forbearance rate of 9.73% this week, up from 8.26% a week ago.

Meanwhile, Fannie Mae- and Freddie Mac-backed loans fared slightly better, with their forbearance rate rising from 4.64% to 5.46%.

On a percentage basis, the forbearance rate increased by nearly the same exact amount for both Ginnie-backed loans (17.8%) and for Fannie/Freddie loans (17.67%), which is interesting.

The share of other home loans in forbearance, including private-label securities and portfolio loans, rose from 6.43% to 7.52%, a 16.95% increase.

With regard to loan servicer type, independent mortgage bank (IMB) servicers, otherwise known as nonbanks, saw forbearance rates increase to 6.52% from 5.69%, while depository banks saw forbearance rates climb to 7.87% from 6.57%.

Finally, loan servicer hold times remained relatively flat at 5.0 minutes, compared to 4.9 minutes last week, while abandonment rates increased a bit from 9.7% to 9.9%.

The average call length went up for the fifth consecutive week, though just slightly from 7.6 minutes to 7.7 minutes.

Fannie and Freddie Working on a New Forbearance Repayment Plan

  • The pair are reportedly working on a new way to repay mortgage forbearance
  • Mirrors the FHA’s partial claim that creates an interest-free second mortgage
  • Details are expected to be announced in the next two weeks
  • Could lead to even higher forbearance rates due to clarity and it being a good deal for borrowers

The question everyone keeps asking is how mortgage forbearance will be paid back. I wrote about it a couple weeks back and felt the FHA’s take was the best of the bunch.

They offer a partial claim where the missed payments are basically set aside in an interest-free second mortgage that doesn’t need to be paid back until you refinance your first mortgage or sell your home.

This makes it easy for borrowers to get back on their feet, without having to worry about making up the shortfall when normal monthly payments resume.

And it appears Fannie and Freddie are looking at the same type of plan, per an article over at Bloomberg.

MBA CEO Bob Broeksmit told the publication “they plan to soon announce a repayment plan similar to the one already offered by the FHA.”

Broeksmit said it would likely “be a top choice for borrowers,” and “lighten the processing load for servicers.”

Expect an announcement in the next two weeks or so regarding that. This has now been confirmed and is known as COVID-19 payment deferral.

The downside is it will likely entice even more homeowners to opt for forbearance, given the unbeatable deal of missed mortgage payments that don’t need to be repaid until you sell.

Read more: Borrowers will not be required to repay forbearance in a lump sum.

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