AZ Forbearance Update 5/19/2021

In this 17 minute video, Lydia Wietsma and I discuss the latest in forbearance, delinquencies, employment, and loan servicing.

Forbearance Numbers:

We had another week of improvement in the forbearance numbers. There are now only 2.1 million borrowers or 4.22% of mortgages are in a forbearance plan. This is down from last week’s 4.36%.

Forbearance by Stage:

• 11.9% of borrowers are in the initial stage of forbearance and new requests dropped down to their lowest level since March of 2020.
• 83% of borrowers are on extension, up from previous weeks. Over 50% of borrowers on extension have been in forbearance for over 12 months.
• 5.1% of borrowers are re-entries, also up from previous weeks.

Forbearance Exits from June 1, 2020 through May 9, 2021:

46.5% of borrowers continued making their payments, got caught up upon exit, or paid off the loan with a refinance or sale upon exit. This number has declined slightly in recent weeks.

15% of borrowers exited their plan, still behind on their payments and without a loss mitigation plan in place. It is critical for struggling borrowers who are nearing the end of their forbearance plan to call their lender or loan servicer to discuss the options. There are options.

Delinquencies:

Remember in December when there were roughly 10 million Americans behind on either rent or mortgage payments? By March that number dropped to 5 million!

Single Family Rentals:

Two of the country’s largest single-family rental REITs upped their rates on vacant homes in April by a lot. American Homes 4 Rent increased 11% and Invitation Homes increased by 10%.

Housing Shortage:

From 1959 to 2006 builders built an average of just over 1.1M single-family homes a year. From 2007 to 2020 they built an average of just over 700,000 homes a year. This has created a 5.5M home shortfall nationwide. In 2020; 990,500 homes were started, still below the average prior to 2006. Based on this math, if builders build 2M houses a year, it will take 6 years to make up for the shortfall.

Another way to look at it for all residential building:

Employment:

• ASU’s WP Carey School of Business predicts that Arizona will add nearly 117,000 jobs this year putting us ahead of our pre-pandemic numbers; a significant feat considering in April of 2020 Arizona lost over 331,000 jobs.
• Today we have roughly 7,367,000 job openings, which is about 5.5 million more than we had at the lowest point of the great recession.

April’s employment numbers were so disappointing that the U.S Chamber of Commerce, the nation’s largest lobbying group, urged Congress to end the $300-a-week federal unemployment benefits, claiming that people being paid not to work were keeping consumers from returning to the labor force.

Employers are having to offer higher wages to get people to come back to work. When wages increase quickly, it drives even more inflation which would put further pressure on mortgage rates which would add to the affordability challenges in housing.

Today, locally, our median appreciation rate is at 30%!!! It is due to the supply/demand imbalance as our supply is still over 76% below normal while our demand is over 7% above normal. This extreme appreciation rate is expected to fall as inventory continues to grow, it is increasing at an almost imperceptible rate, and as demand continues to decline.

Elliot Eisenberg’s Scary Scenario. On Tuesday, the economist wrote:

“Aside of a bad Covid recurrence, here’s how a recession could occur. Due to supply chain problems and labor shortages, consumer prices and wage inflation rise quickly, spooking markets. Powell resists raising rates, but the pressure is too great and he caves. In response, equities, bonds, commodities, and other assets decline. This also pushes leveraged firms into bankruptcy, hurts emerging economies, and we accidentally end up in a mild recession.”

Lydia Discussed:

Retro BPO, or a historic BPO looks at the valuation of a home and the comparables at a specific timeframe in the past. They are often used when potential fraud is suspected.

Servicers do not believe there will be any further extensions for the foreclosure or eviction moratoriums and no further forbearance extensions. There is also a continued increase in inspection requests.