In this 13 minute video, Lydia Wietsma and I discuss the most recent five things you need to know about forbearance. The majority of borrowers leaving forbearance are current upon plan exit. There is not much time left if someone needs to take advantage of these CARES Act benefits.
We do these updates to help real estate professionals and consumers understand forbearance, to let struggling borrowers know that although experts are forecasting a tough winter, there are options.
Lydia and I have been watching the numbers very closely. We had our first 2 weeks of increases, followed by a week of staying flat, and now last week, we had a decline in total mortgage loans in forbearance. It dropped from 5.54% to 5.48% or roughly 2.7 million borrowers.
While people are leaving their forbearance plans, more are leaving through a loan modification versus which indicates that not everyone has been able to get caught back up, even if they are working.
Another point to make here is that the initial forbearance requests increased to the highest level since August 2. Servicer requests (renewals or initial) increased to the highest point since April 19. Lydia, that means people are watching our videos and making those calls as we get closer and closer to the cut off at the end of the year. Either our informational videos or the fact that the unemployment numbers are worse than experts predicted, while still moving modestly in the right direction.
To break the forbearance numbers down by stage, of the borrowers in forbearance, just under 19% are in the initial stage, just under 79% are on extension and about 2.5% are re-entries.
Of the cumulative forbearance exits for the period from June 1 through December 6, 2020:
- 30% continued to make their payments throughout the term.
- 16% were caught up upon plan exit
- 13% did not make all of their payments and exited forbearance without a loss mitigation plan in place.
The Cares Act created a lot protections for homeowners and renters. However, upon the expiration of the eviction moratoriums struggling renters will be very exposed. The provisions for homeowners are considerably more extensive. Borrowers in forbearance have the benefit of time within a forbearance plan. And even if borrowers are late and then proceed towards foreclosure, that process takes about 6 months. How much time does a renter get? This is another benefit of homeownership.
Also remember homeowners have gained a lot of equity this year and there are options available. There are about 6755 active listings in ARMLS, we should have 25,000, prices will continue to rise.
Including today and Christmas Eve there are only 11 business days left for borrowers to call their servicer and get started on a forbearance plan. It may be extended but currently the program expires on 12/31/2020.
Servicers are getting more active. Lydia’s requests are increasing, yesterday she had 6 inspection requests. They are getting ready to move forward on loans that are delinquent as soon as the moratoriums are lifted. The foreclosure moratorium expires 1/31/2021.
When exiting forbearance borrowers have a number of options; 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 the amount, and rent/move in with family.
Sarah Perkins is an award winning account executive and has been in title sales since 2004. As the Director of Industry Research & Senior Account Executive, Sarah’s role is to bring real estate transactions to Navi Title. Sarah supports her clients by helping them navigate the ever-changing real estate space through thorough research and understanding of current trends impacting today’s home buyers and sellers.
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