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Nearly 6% of Mortgages in Forbearance as FHFA Provides Relief to Loan Servicers

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With each week that goes by, the mortgage forbearance rate climbs to new highs thanks to the coronavirus (COVID-19).

The more or less complete shutdown of the world economy has led to skyrocketing unemployment and the inability for many to make ends meet, including the monthly rent or mortgage payment.

While it’s unclear how bad it will get, the trajectory is very much on the up and up, and it could get a lot worse once May hits and those on the fence turn to their loan servicers as well.

Mortgage Forbearance Rate Increased Nearly 60% From a Week Ago

  • Home loans in forbearance increased to 5.95% from 3.74%
  • 8.26% of Ginnie Mae mortgages (FHA/USDA/VA) in forbearance
  • 4.64% of Fannie/Freddie mortgages in forbearance
  • Upside is hold times and call abandonment rates have both gone down considerably

The mortgage forbearance rate rose 59.1% during the week ending April 12th, from 3.74% to 5.95%, per the latest MBA weekly survey.

While the percentage gains will understandably drop as more enter forbearance plans, it’s still a pretty nasty spike.

So even if the forbearance rate only climbs 30% next week, it would still mean nearly eight percent of all mortgages would effectively be on pause.

In other words, look at the total percentage of loans in forbearance, and pay less attention to the weekly gains as time goes on.

Like prior weeks, Ginnie Mae-backed home loans continue to fare worst, with FHA loans, USDA loans, and VA loans seeing their forbearance rate climb from 5.89% to 8.26%, a 40% rise.

Meanwhile, Fannie Mae and Freddie Mac loans in forbearance increased from 2.44% to 4.64%, a 90% surge.

This may have been what prompted the Federal Housing Finance Agency (FHFA) to finally take action to protect the servicers of Fannie/Freddie mortgages.

The other good news (for homeowners) is that it appears to be getting easier to make contact with servicers.

Loan servicer hold times dropped from 10.3 minutes to 4.9 minutes, while abandonment rates were nearly slashed in half from 17.0% to 9.7%.

That means it should be easier to get through to your loan servicer if you’re in need of mortgage assistance, but have yet to make the call.

FHFA Will Only Ask Servicers to Advance Four Months of Missed Mortgage Payments

  • Servicers of Fannie/Freddie loans only on the hook for 4 missed payments
  • Instead of up to 12 as permitted under the CARES Act forbearance plan
  • Should protect most loan servicers at risk of facing liquidity issues
  • COVID-19 affected loans now being treated like a natural disaster event

Now onto the relief finally being provided by the FHFA, after director Mark Calabria had initially been reticent about any sort of plan.

Today, the agency aligned Fannie and Freddie’s policies regarding loan servicer obligations to advance scheduled monthly principal and interest payments for delinquent mortgages.

Simply put, once a loan servicer has advanced four months of missed payments, it will be off the hook for additional advances to cover scheduled payments.

This basically limits how much a loan servicer will need to pay investors without being reimbursed, and also gives them a clue as to how much they’ll need to set aside.

Under the CARES Act, homeowners are allowed to request forbearance for a full 12 months. So this lessens the potential blow.

Additionally, the FHFA has instructed the GSEs to keep loans in COVID-19 payment forbearance plans in mortgage-backed security (MBS) pools for at least the length of the forbearance plan.

Historically, loans delinquent for more than four months would be purchased out of MBS pools by the GSEs, but these COVID-19 affected loans are now being treated like a natural disaster event.

As such, they will remain in the MBS pool, which “reduces the potential liquidity demands on the Enterprises.”

The new rule applies to all Fannie/Freddie servicers regardless of their type or size.

Still the Issue of Property Taxes and Insurance…

  • Doesn’t address missed escrow payments including property taxes and insurance
  • Loan servicers are still required to pay these on behalf of homeowners
  • Will homeowners without impounds continue to make these payments on time?
  • MBA also wants the Treasury and Federal Reserve to put a “liquidity facility” in place

While the MBA mostly praised the move, saying it “reduces servicers’ worst-case cash flow demands considerably,” they pointed out that it leaves questions regarding impounded mortgage accounts.

Many loans, especially high-LTV mortgages, require that the servicer pay the property taxes and homeowners insurance, and mortgage insurance if applicable, on the borrower’s behalf.

This is to ensure timely payments are made on major bills that some homeowners might forget to set aside money for throughout the year.

Apparently, servicers are still on the hook for these payments, which is somewhat ironic. Had they not charged to remove impounds, many borrowers would have to make these payments themselves.

Of course, that brings up an important question – will homeowners without impounds actually pay their property taxes and insurance? We’ll find out soon.

The MBA has also called on the Treasury and Federal Reserve to create a “liquidity facility” for servicers who need it to ensure they’re still able to pay investors, municipalities, and insurers.

Read more: Is a cash out refinance a better solution than forbearance?

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