AZ Forbearance Update (Video) 11/4/2020

In this 12 minute video, Lydia Wietsma and I discuss the latest news in forbearance and emerging trends and improvements in the situation and options. The bottom line is that people have options but they have to take action, watch the full video for details.

We do these updates to help real estate professionals and consumers understand forbearance, to let struggling borrowers know they have options, and to reassure everyone that today’s market is not like the 2005 bubble/2008 crash.

6 Things You Need to Know About Forbearance:

ONE: Loans in forbearance continue to decline.

Last week total mortgages in forbearance declined from 5.9% to 5.83% dropping the total to around 2.9 million loans. (MBA)

“With more borrowers exiting forbearance in the prior week, the share of loans in forbearance declined across all loan types. Almost half of forbearance exits to date have been from borrowers who remained current while in forbearance, or who were reinstated by paying back past-due amounts. The share of loans in forbearance has returned to levels last seen in early April, but it still remains remarkably high. Further improvement will require ongoing recovery in the job market, as well as additional fiscal stimulus.”  

Mike Fratantoni, MBA’s Senior Vice President and Chief Economist

TWO: Delinquency rates are declining.

Not all loans in forbearance are delinquent. Some borrowers in forbearance remain current on their mortgage. The borrowers that are late do fall into delinquent status despite not being penalized for being late.

• 4.4% of borrowers are seriously delinquent which is 1.9 million more than 6 months ago.
• Seriously delinquent loans or more than 90 days past due constitute the largest group of delinquent mortgages. This number declined for the first time from August at 2.37 million to September at 2.32 million. (Black Knight)
• Early stage delinquencies (30 day late) has dropped and is nearly back at pre-pandemic numbers.
• Roughly 409,000 borrowers who were current on their mortgage in August became 30 days delinquent in September, the lowest number since January.
• Cure activity, or getting caught up, also increased in September, with about 502,000 borrowers who were delinquent in August moved to current status in September.
• In September, the nationwide mortgage delinquency rate was 6.6%, a 3.1% decline from August.
• In September, the Arizona mortgage delinquency rate was 5.5%, down from 5.6% in August.

Delinquency Rate Baselines:

• COVID Peak delinquency rate: 7.8%
• Great recession delinquency peak: 10.6%
• January 2020 delinquency rate: 3.22%

THREE: Today’s real estate market is not like the 2005 bubble/2008 crash.

• Total mortgages in forbearance is decreasing.
• Delinquencies are declining.
• Homes are appreciating.
• We have true demand as seen in rental appreciation. Rents are rising faster than sales and now, in Phoenix, it is more expensive to rent the median home than it is to buy it.

FOUR: Servicer inspection requests are decreasing.

Lydia received 3-5 inspection requests daily from her servicing company throughout much of September and October. This has been decreasing to 1-2 inspection requests daily over the past 2 weeks.

FIVE: Forbearance does not equal forgiveness.

It is a deferment of payments only, the debt will be collected in some fashion, whether it is through a modification, restructuring, full payment, etc.

SIX: Plan an exit strategy.

Borrowers in forbearance should have an exit strategy planned before the end of the year. They do not need to exit forbearance by then but they should have a plan to exit in the future.

There are a number of ways a borrower can leave forbearance, not all of them require the owner to sell their property. Some of these options include:

• Utilizing a 401K in two ways.
  • Individuals are allowed to borrow from their 401K with the option of paying themselves back with interest, since it is a loan being paid back, essentially paying yourself back there are no penalties. Talk to your 401K administrator for details.
  • Through provisions of the CARES act an individual can also withdraw an amount of their 401K with no penalties. Again, talk to your 401K administrator for details.
• Permanent loan modification or refinance, after making 3 payments in a row, to something that allows borrowers to stay. Some scenarios include adding the forborne amount at the end of the loan, some pay a lump sum to get caught up, some offer payment plans to get caught back up.
• Rentals are in high demand with quickly appreciating values. What about moving out of the property and renting it out to make up the difference in payments.
• Sell and buy something more affordable, after 3 payments in a row have been made. Pay off the loan and get a new loan with more agreeable terms.
• Sell, pay off the loan and forborne amount and rent/move in with family.

Resources:

• Rental assistance is available through the Arizona Department of Housing website at https://www.saveourhomeaz.gov/self-assessment/
• The CFPB, FHFA, HUD, VA and USDA created a joint effort mortgage and rental assistance platform, for more information visit https://www.consumerfinance.gov/coronavirus/mortgage-and-housing-assistance/