more-->“The first decline in the number of homeowners in active forbearance volumes is undoubtedly a good sign, particularly coming as it does on the heels of an overall trend of flattening inflow,” Graboske said. “Of course, the shift from pipeline growth to pipeline management presents its own set of challenges for servicers and investors.
"The good news is that equity positions among homeowners in forbearance are by and large strong. Nearly 80% of homeowners in active forbearance have 20% or more equity in their homes, providing homeowners, servicers and regulators with options for helping to avoid downstream foreclosure activity and default-related losses. Just 9% have 10% or less equity–typically enough to cover the cost of a sale of a property–with another 1% underwater on their mortgages. Of course, this leaves a population of nearly half a million homeowners who may lack the necessary equity to sell their homes to avoid foreclosure in a worst-case scenario. Looking at this population by investor, we see the share of low and negative equity borrowers in forbearance is much higher among FHA/VA loans. This segment–which has the highest forbearance rates overall–sees 19% of homeowners holding 10% or less equity in their homes.
“Despite 25% of the workforce filing for unemployment benefits, just 9% of mortgages are currently in forbearance," Graboske adds. "Further, in April, nearly half of homeowners in forbearance plans made their April mortgage payments. Just 22% of those in forbearance as of May 26 have made their May payment, signaling another rise in the national delinquency rate is likely to be reflected in May’s data. With expanded unemployment benefits set to end on July 31, it remains to be seen what impact that may have on both forbearance requests and overall delinquencies.”
With April prepayment rates hitting a 16-year high, Black Knight's Mortgage Monitor also looked at the ways in which forbearance and overall delinquency increases have impacted refinance incentive in light of 30-year interest rates hitting a new record low on May 28, according to Freddie Mac’s Primary Market Mortgage Survey. With rates at 3.15%, there are approximately 14 million borrowers who could save at least 0.75% on their current interest rates by refinancing and meet broad-based eligibility criteria (current on payments, with at least 20% equity and credit scores of 720 or higher).
The fallout from COVID-19 has impacted this population, with 4% of homeowners who would have otherwise met these criteria no longer being able to refinance due to delinquency (3% of which are in active forbearance and past due on mortgage payments, and 1% delinquent, but not in forbearance). Another 4% are in forbearance but who remitted their April mortgage payment. Given the reduced payment activity among loans in forbearance in May, the number of homeowners who no longer meet refinance eligibility requirements may rise further as a result of missing May mortgage payments.