EDITOR NOTE: Investor sentiment drunk on optimism has given us a nice couple of months in the market. Is it now time to sober up? The rate of homeowners unable to afford their mortgage payments has just spiked once again. On top of this, states are beginning to halt their reopening phase as COVID-19 cases continue to rise, threatening hopes of a sharp economic recovery. Folks, it ain’t over. It would be nice to think that the worst had already happened. But objectively, what would make anyone “believe” such a thing? There’s no room for “hope” in the market, just pure objectivity and a willingness to adapt to whatever “appears” to be the case.
After declining for three weeks, the number of borrowers delaying their monthly mortgage payments due to the coronavirus rose sharply once again.
The number of active forbearance plans rose by 79,000 in the past week, erasing roughly half of the improvement seen since the peak of May 22, according to Black Knight, a mortgage data and technology firm. By comparison, the number of borrowers in forbearance plans fell by 57,000 the previous week. Increases happened every day for the past five business days.
As of Tuesday, 4.68 million homeowners were in forbearance plans, allowing them to delay their mortgage payments for at least three months. This represents 8.8% of all active mortgages, up from 8.7% last week. Together, they represent just over $1 trillion in unpaid principal.
The mortgage bailout program, part of the CARES Act, which President Donald Trump signed into law in March, allows borrowers to miss monthly payments for at least three months and potentially up to a year. Those payments can be remitted either in repayment plans, loan modifications, or when the home is sold or the mortgage refinanced.
While some borrowers who initially asked for the mortgage bailouts in March and April ended up making their monthly payments, the vast majority now are not. There were expectations that the mortgage bailout numbers would improve as the economy reopened and job losses slowed. But this surge is a red flag to the market that homeowners are still struggling as coronavirus cases continue to increase in several states.
By loan type, 6.9% of all Fannie Mae and Freddie Mac-backed mortgages and 12.5% of all FHA/VA loans are currently in forbearance plans. Another 9.6% of loans in private label securities or banks’ portfolios are also in forbearance.
The volumes rose across all types of loans but were sharpest for FHA/VA loans. FHA offers low down payment loans to borrowers with lower credit scores. Such loans are popular among first-time homebuyers. The number of FHA/VA borrowers in forbearance plans increased by 42,000 last week, while government-sponsored enterprise and nonagency loan forbearances increased by 25,000 and 12,000, respectively.
At today’s level, mortgage servicers may need to advance up to $3.5 billion per month to holders of government-backed mortgage securities on Covid-19-related forbearances. That is in addition to up to $1.4 billion in tax and insurance payments they must make on behalf of borrowers.
Originally posted on CNBC