Mortgage Forbearance Volumes Surge In April But Trend Is On The Decline

The volume of mortgage forbearance jumped in the first two weeks of April but leveled off at the end of the month.

The latest Black Knight Mortgage Monitor covers the Surge in Forbearance Volumes.

Key Points

• More than 3.8M mortgage holders – 7.3% of the total first-lien market – have already entered into forbearance plans as of April 30. 
• FHA/VA loans have the highest forbearance rates by investor class at 10.5% (1.27M), while the 1.7M (6.1%) GSE mortgages in forbearance represent the largest volume.
• Despite not being mandated by the CARES act, some 6.7% (863K) of portfolio held and/or private-labeled security loans are also under forbearance » The $841B in UPB currently under forbearance is significantly impacting servicer cash flows.  
• Roughly $1.1B/month in P&I advances are needed for FHA/VA loans in forbearance,  plus another $480M in monthly taxes and insurance (T&I) payments hang in the balance as well

Surge Tapers Off

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• After surging at the beginning of April and then rising again near the 15th – when late fees are typically charged on past due payments – the number of new forbearance requests has declined in recent weeks.
• While total forbearance volumes continue to mount, daily inflow has begun to taper off.
• Between 53,000 and 102,000 new plans have been put into place over each of the last nine days, less than a quarter of levels seen earlier in April.

Active Forbearance Plans Scenarios 

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Three Scenarios

1. In an optimistic scenario in which daily forbearance volumes continue to decline by 10% per day, the number of forbearances could peak at approximately 4.5M in the coming months. 
2. Should current forbearance volumes hold steady through mid-June, more than 8M  homeowners could enter into forbearance plans, representing 16% or more of all mortgages.
3. If that adverse scenario holds true, servicers would be required to advance $4 billion in a monthly principal and interest payments on GSE mortgages alone 

Even under the FHFA’s recent four-month limit on principal and interest (P&I advances), servicers would still be bound to make $16 billion in advance payments over that time span

The middle scenario seems about right but the totals from now through mid-May will tell the story.