Mortgage forbearance volumes fell between May 26 and June 6 – the first drop since the COVID-19 crisis began, according to a report by Black Knight. That means that servicers and mortgage investors may need to start shifting their focus from pipeline growth to pipeline management. Fortunately, most homeowners in forbearance have a reasonable amount of equity in their homes, said Ben Graboske, president of Black Knight Data & Analytics.
“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, Graboske said. That gives servicers and regulators options to help avoid 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,” Graboske said. “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.”
The share of low- and negative-equity borrowers in forbearance is much higher among FHA and VA loans, Graboske said.
“This segment – which has the highest forbearance rates overall – sees 19% of homeowners holding 10% or less equity in their homes,” he said.
While 25% of the workforce has filed for unemployment benefits, just 9% of mortgages are currently in forbearance, according to Black Knight.