Forbearance Is Panicking Borrowers As It Reaches Its End.
The end of forbearance may be panicking borrowers. In a just released report, the Consumer Finance Protection Bureau (CFPB) noted that March 2021 had the most complaints since April 2018. Those complaints overwhelmingly focus on mentions of forbearance and related terms. The number of mortgage borrowers who reported struggling to make payments also rose.
CFPB has been issuing conflicting information on forbearance. Misinformation or lack of information confuses borrowers and lenders. And it leads to incomplete details for borrowers on options to exit forbearance. Different rules follow different options. A borrower may not see their preferred option for a workout. The workout may be a restructure, modification, or recast. Likely, much of this confusion results from borrowers assuming forbearance meant payments could be skipped, then restarted, with no consequences. Pure speculation, but readers here will have a much better understanding of options to exit forbearance.
Many borrowers reported long delays completing a loan modification. The delay in processing the modification delays resuming current payments on the mortgage. Much of the delays reflect incomplete documents and information from the borrowers. But that may result from servicers providing incomplete information about available options. Communication about the entire process, options and documentation needs improvement. Different documentation feeds the different types of modifications. Many borrowers focus on a specific result they want to achieve but which may not exist or for which they don’t qualify.
Forbearance Status
As borrowers exit forbearance, servicers see more work as a result. The Mortgage Bankers Association estimated 27% of exits since June of 2020 resulted in loan deferrals or partial losses. In other words, not all exits succeeded. Overall, the recent statistics on entries and expirations pushed the rate of exits from forbearance to the lowest level since February. Of loans still in forbearance, 12.8% fall into the initial forbearance plan stage. But the vast majority, 82.3%, are in a forbearance extension. The remaining 4.9% are forbearance re-entries (unsuccessful exit). With 82.3% of loans in the forbearance extension category, these loans present a quandary. These are the most difficult to qualify and achieve a workable, long term modification/recast.
The CFPB pointed out FHA loans in particular as having complications. Borrowers have difficulty when attempting to modify a loan to address forborne payments. FHA loans have had the largest forbearance portfolio share for the better part of the pandemic. It’s rules are rigid and FHA only serves as the guarantor. The loans are actually owned by other entities. However, the strict requirements to maintain FHA guarantees means that those lenders won’t make a move without FHA blessing. Since FHA is a government entity, flexibility, timeliness and logic may not apply in managing its forbearance program.
Exiting Forbearance
If you know anyone in forbearance, direct them to our discussions on exiting forbearance. Good preparation and knowledge of options makes success for a recast/modification of the mortgage more likely. If the end of forbearance is panicking borrowers, better information will help a successful exit.
Many borrowers appear to wait until the end of the forbearance plan before exiting. This drives up the cost of exiting. According to various sources, the exits concentrate in the first week of the month. Since payments fall on the 1st, this makes sense as the term of extension would expire at the end of a month.
At the end of April, the estimate noted 105,000 exits with another 73,000 not yet completed, but hitting expiration. Remember, an exit may be initiation of foreclosure or deed-in-lieu of foreclosure, not just a workable repayment plan. Then, expiration ramp up quickly with 350,000 expiring in May and 900,000 in June. That would leave another 1 million to go. However, this assumes many of these entered forbearance early. Later entrants into forbearance can remain in forbearance until 2022. Below is a view of the forbearance loan total over time from BlackKnight, a mortgage software and information provider.
