AZ Forbearance Update 3/17/2021

In this 15 minute video, Lydia Wietsma and I discuss the latest in mortgage forbearance, delinquencies, and declining demand (not prices).

Forbearances:

We have some good news and progress in regards to forbearance and delinquencies. The rates of mortgages in forbearance declined again week over week. We are now down to 5.14% from 5.20% keeping the number about 2.6 million.

Forbearance by Stage:

• 14.1% are in the initial stage, down from last week’s 14.6%.
• 83.3% are on an extension, an increase from just below 83% last week.
• 2.6% are re-entries, the same as last week

Forbearance exits from June 1, 2020 through March 7, 2021:

• 42.3% of forbearance exits are current upon exiting their plan.
• 14.1% represented borrowers who did not make all of their monthly payments and exited forbearance without a loss mitigation plan in place yet.

Delinquencies:

Remember unpaid loans in forbearance are also counted in the mortgage delinquency numbers. The following information comes from the Black Knight Mortgage Monitor report. For the full report, click here.

From December to January total delinquent loans decreased by 3.82% to 5.9% of loans are delinquent. This is the first time it has been below 6% since March 2020.

Early-stage delinquencies continue to stay below pre-pandemic levels, with the number of borrowers with a single missed payment down 24% and 60-day delinquencies down 6%.

However, despite some slight improvement in January, the 2.1 million serious delinquencies (90+ days) remain 5X or 1.7 million more than their pre-pandemic levels.

Here in AZ, we have had an increase of 2.8% in seriously delinquent loans, year over year. That is lower than most states. Hawaii has the highest rate at 5.2% and Idaho has the lowest 1.6%.

370,000 borrowers who were current on their mortgage became 30 days delinquent in January, marking the lowest inflow in the past 12 months.

However, the number of borrowers rolling from 30-to-60 and 60-to-90 days delinquent were up 31% and 75% year-over-year respectively as borrowers may be rolling to later stages at higher rates because of participation in forbearance plans.

While the rate of improvement could accelerate/decelerate based on broader economic factors, borrowers have limited incentive to leave forbearance plans early and we could see just a 20% decline in serious delinquencies between now and the end of Q3 2021 if current trends hold true.

Not only does this place continued pressure on servicing entities, but forborne interest as well as tax and insurance payments have a negative impact on borrowers’ equity positions.

The industry must now walk the fine line of providing ample borrower protections while at the same time trying to limit equity erosion and servicer advance risk. Which is why it is important for struggling borrowers to get into a forbearance plan within their specific loan’s guidelines. The timelines are a little confusing too.

Timelines:

Anyone can get started in a forbearance now, borrowers have until June 30, 2021 to get started. Then each loan type has different timelines for extensions. We will post the dates for each loan type.

VA, FHA & USDA borrowers:

• On February 16, 2021, the U.S. Department of Housing and Urban Development (HUD), the U.S. Department of Veterans Affairs (VA) and the U.S. Department of Agriculture (USDA) extended moratoriums on single-family evictions and foreclosures to June 30, 2021.
• They also announced that borrowers who have been on a COVID-19 forbearance plan on or before June 30, 2020 may request up to six months of additional mortgage payment forbearance, in three-month increments, which provides up to 18 months of deferment.
• HUD extended the deadline for the first legal action against FHA borrowers and the reasonable diligence time frame to 180 days from the date of expiration of the foreclosure and eviction moratorium.

Fannie Mae & Freddie Mac borrowers:

• On February 25, 2021, the Federal Housing Finance Agency (FHFA) extended moratoriums on single-family evictions and foreclosures to June 30, 2021.
• It also announced that borrowers who are on a COVID-19 forbearance plan on or before February 28, 2021 may request up to three months of additional mortgage payment forbearance, which provides up to 15 months of deferment.

Demand:

We will likely have fewer transactions in the 2^nd half of the year due to low inventory but also dropping demand partially due to rising prices and rising interest rates and the market is trying to stabilize. Demand is currently dropping faster than supply. Nationwide supply did not drop last week, for the first time in a year. Dropping demand is hard to notice when you go from 50 offers to 15 offers, or even 15 offers to 3 offers. This does not mean that prices are dropping or will drop. It just means sales will not be as far above asking and it is not the time for sellers to overprice their listings. Expect increased competition in the coming months.