End of forbearance programs could put a strain on loan service providers

Forbearance programs, which allowed homeowners with government-sponsored mortgages to suspend their monthly payments during the pandemic, will come to an abrupt end in the coming months, straining the capacity of loan service providers to help borrowers avoid foreclosures.

That emerges from a new analysis of the data aggregated by Black Knight, which found that 65 percent of active forbearance plans, which represent 1.2 million homeowners, will expire this year. September and October will be especially challenging with 18,000 plans expiring every weekday during these months.

“The operational challenge this presents is overwhelming,” especially given the oversized proportion of FHA and VA borrowers who may have a harder time getting back on their payments than homeowners with loans backed by Fannie Mae and Freddie Mac Black Knight’s Ben Graboske said in a statement.

Forbearance programs, which allowed homeowners to stop their monthly mortgage payments, were one of the success stories of the pandemic. Black Knight estimates that approximately 7.3 million homeowners relied on forbearance at some point during the pandemic, but only 1.86 million remained in active plans as of July 20.

The programs were so successful that Fannie and Freddie’s federal regulator, the Federal Housing Finance Agency (FHFA), allowed them to cut a 50 basis point refinancing fee on Aug. 1, which was put in place to help the mortgage giants at least 6 US dollars to cover billions in expected pandemic damage.

Source: Black Knight Mortgage Monitor

But now that the FHFA and the authorities that regulate FHA, VA, and USDA mortgage programs have updated their schedules for ending their respective pandemic forbearance programs, it is clear that all will expire in a short window. Plans that began with an interval of up to seven months “should now expire at the same time, whereby the expiry of deferral plans expires earlier than expected,” said Graboske.

That doesn’t mean there will be a corresponding increase in foreclosures. As Matthew Gardner, chief economist at Windermere Real Estate, noted in a recent guest column for Inman, rising property prices mean that if many homeowners cannot resume payments, they have enough equity in their home to sell and keep leaving away with some cash.

Moratoria on loan foreclosures sponsored by Fannie, Freddie, FHA, VA, and VA expired on July 31st. However, before foreclosures are initiated against borrowers who are 120 days in arrears with their payments, the Consumer Financial Protection Bureau expects the loan service providers to reach out to the borrowers and give them the opportunity to request assistance, e.g. B. a loan modification.

The office finalized new rules in June warning lending servicers that they can only initiate foreclosure proceedings against borrowers who have been given the opportunity to seek help but are not qualified, or if a home has been abandoned or the borrower cannot be reached .

“With these rule changes, indulgent homeowners have the time and support to make the decision that best suits their individual and family needs,” the office said at the time.

The office provides a variety of web resources for homeowners in need, including information on how to contact housing counselors, attorneys, and access federal and state protections.

“If you are behind on your mortgage, the sooner you contact your mortgage administrator, the more options you have,” the office advised in a July 22nd blog post. “Even if you can’t afford your current mortgage payment, you can avoid foreclosure.”

Black Knight data shows that credit service providers only initiated foreclosures on 4,401 homes in June and only 145,360 homes were at some stage in the foreclosure process. That compares with a high of 323,000 foreclosure starts in March 2009, at the height of the last real estate crisis. Black Knight’s data shows active foreclosures that peaked at 2.3 million in December 2010.

Source: Black Knight Mortgage Monitor

That said, unpaid mortgage loans, interest, taxes, and insurance hit $ 64 billion in February, a number that has declined only slightly since then. Congress has more than $ 9 billion in the American Rescue Plan Act.

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