January may see a big drop as an estimated 367,000 forbearance plans are set to expire
The number of mortgages in active forbearance rose by 20,000 last week, according to a Friday report from Black Knight. Though the raw number increased, the number of mortgages in active forbearance remained at 5.3%, unchanged from the week prior.
Heading in to the last week of the year, Black Knight estimates 2.8 million homeowners are in some form of forbearance – accounting for $565 billion in unpaid principle. (Housing Wire)
Last week’s uptick was largely driven by the share of loans in forbearance rising from 5.2% to 5.3% (17,000 overall) in private label securities or banks’ portfolios.
The share of Federal Housing Administration and Veterans Administration‘s loans in forbearance as a share of portfolio also rose some 10,000 last week from 9.4% to 9.5%.
Though the week prior saw a 5,000 forbearance plan uptick in the raw number of GSE loans, those backed by Fannie Mae and Freddie Mac fell by 7,000 week-over-week while maintaining their 3.5% portfolio share from the week prior.
According to Black Knight, a small increase in forbearance toward the middle and end of the month is not uncommon as the strongest declines typically take place toward the beginning of the month as forbearance plans are removed.
January in particular may experience some rather steep drops as 367,000 forbearance plans are set to expire the first month of the year. How many of those plans will be extended is still unknown.
On a bright note, after seeing both new plan starts as well as re-start activity rise in early December, forbearance starts across the board have declined in each of the past two weeks.
“This improving trend can undoubtedly be seen as a positive development, as rising starts alongside unfavorable employment numbers early in the month have been threatening the broader trend of improvement of recent months,” Black Knight said.
Though forbearance numbers are nearly 2 million below May’s peak, Black Knight’s delinquency numbers are showing the national delinquency rate is nearly three percentage points above pre-pandemic levels.
Michael Sklarz, who leads Black Knight Data and Analytics’ Collateral Analytics team, predicts that rather than face foreclosure, many homeowners nearing the expiration of their forbearance plans under the CARES Act might put their properties up for sale.
“There are millions of homeowners currently in forbearance across the country who will lose those protections throughout next year and – depending upon their ability to return to performing status – who may find themselves facing foreclosure,” Sklarz said. “This is of course assuming a Biden administration doesn’t extend the moratoriums currently in place.”
If this rapid increase in inventory does come to fruition from increasing forbearance exits, Sklarz said it could put downward pressure on home prices.
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