AZ Forbearance Update 4/21/2021

In this 13 minute video, Lydia Wietsma and I discuss the latest in the economy, forbearance, and borrower options.

The most important takeaway from today’s video is that struggling borrowers have options and many people who entered a forbearance plan do not understand what forbearance is. If a borrower has questions about their situation, they need to call their mortgage servicer to discuss options. Time is of the essence.

The CFPB created this page full of information for struggling homeowners and renters.

Economy:

Economically speaking, we are in very good shape. Things are improving across the board and residential real estate remains the strongest sector. The market is just beginning to show signs of normalcy, which is very good. Demand, while still strong, is calming down. Fatigued buyers are just now getting a few more options.

The pandemic created involuntary savings. People simply couldn’t spend the way they used to so all of a sudden they had money for a down payment or that down payment they were saving for reached the target amount. This enabled super strong demand. As the economy opens up and people are able to spend their money on more services like concerts, eating out, and traveling the buyer demand is likely to subside some. This will also help bring us back to closer to normal sales cycles. Despite movement towards normal, sales prices and appreciation continue to grow. While yes, inventory has increased, it remains over 77% below normal and demand has decreased it is still over 8% above normal. This supply-demand imbalance is so severe, it will take years to correct which is why sales prices continue increasing around 18% year over year.

Unemployment is improving. When all kids go back to school next fall, provided that happens, the unemployment rate will get even better. There are over 11 million students K-12 in the US. A lot of parents had to choose between their kid and their job.

Forbearance Numbers:

Two weeks ago, we had a big drop in total loans in forbearance, and last week we had another large drop. We are now down to 4.50% of loans or 2.3 million homeowners in a forbearance plan. Two weeks ago, it was 4.9% of loans.

Forbearance by Stage:

• 13.1% of loans in forbearance are in the initial stage, down from two weeks ago when it was 13.7%.

• 82.1% are on extension, down from two weeks ago when it was 84.1%. More than 36% of borrowers on extension have now been in a forbearance plan for over 12 months.

• 4.8% are re-entries, up from two weeks ago when it was 2.2%.

Forbearance exits from June 1, 2020, through April 11, 2021:

• 40.1% of borrowers either continued making their payments throughout their forbearance plan or got caught up upon exit. This is down from two weeks ago when it was 41.2%.

• 14.6% of borrowers exited their plan, still behind on their payments and without a loss mitigation plan in place. This is an increase from two weeks ago when it was 13.9%.

There are other methods for exiting forbearance such as loan modification, refinance, sale, loan deferral, etc. Mike Fratantoni, MBA’s Senior Vice President and Chief Economist said this about the exits:

“In terms of performance, more than 88 percent of homeowners who have exited into deferral plans, modifications, or repayment plans were current on their loans at the end of March, compared to 92 percent of all homeowners. The accelerating economic recovery in March helped more homeowners recover and become current on their mortgages, in addition to helping other homeowners with more stable financial situations exit forbearance.”

BPOs are increasing a lot.

A borrower did not realize that forbearance was a loan modification. He did not know that he had options. He thought he had a year of not making his payments and didn’t think he had to pay it back.

The biggest unknown is the lack of information. The lenders are not necessarily charging late fees, but they are charging penalties. Each month the lenders and servicers are paying the impounds which are the taxes and insurance to keep the property protected and prevents tax liens. There has been no moratorium on taxes.