A new analysis by real estate analysis provider CoreLogic shows that at the end of September almost three out of four loans (1.2 million loans) on deferral had reached the 18-month limit.
Forbearance is when a mortgage servicer or lender allows a borrower to pause or reduce mortgage payments for a limited time while the homeowner regains his or her financial footing.
Looking at CoreLogic’s numbers behind the scenes, the analysis shows that borrowers who are behind with their payments generally have much higher unpaid principal and monthly payments, on top of other insightful trends.
While the exit plans for the forbearance will not be uniform, the analysis suggests some workout options borrowers should consider in order to avoid the hotly debated wave of foreclosure.
The first wave of borrowers to leave the forbearance will be the largest. These are the borrowers who completed a Covid-19 forbearance plan in April 2020, shortly after the CARES law was signed on March 27, 2020.
Selma Hepp, deputy chief economist at CoreLogic, said that while a large number of deferrals reached their deadlines, a quarter of the borrowers with deferrals continued their monthly payments. With home prices soaring over the past two years, Hepp said many borrowers have enough equity in their home.
“The typical forbearance equity ratio is over $ 120,000 after the missed payments are subtracted,” Hepp said. “And since the mortgage rate margin for insolvent borrowers averages over 1 percentage point, many could benefit from an interest rate adjustment. In the end, based on previous exits, only around 16% of forbearance exits are without a loss reduction plan.
The majority of homeowners are entitled to injunctive relief for a financial emergency related to the coronavirus, according to the Consumer Financial Protection Bureau.
Covid Hardship Forbearance applies to all federally supported and federally sponsored mortgages, including HUD / FHA, VA, USDA, Fannie Mae, and Freddie Mac mortgage loans. This includes most mortgages.
Homeowners on government-backed loans have the right to apply for and receive a deferral period of up to 180 days – which means they can suspend or reduce their mortgage payments for up to six months. In addition, borrowers can request an extension of the deferral for up to 180 additional days for a total of 360 days.
When the Fannie Mae or Freddie Mac mortgage is covered, borrowers can apply for up to two additional three month extensions, up to a maximum of 18 months. However, to qualify, they must have received their Initial Forbearance on or before February 28th.
If the mortgage is covered by the HUD / FHA, USDA, or the Department of Veterans Affairs, borrowers can apply for a similar extension up to a maximum of 18 months. However, in order to qualify, a borrower must have received an initial forbearance on or before June 30, 2020.
Other mortgages may also offer similar forbearance options. Generally, when homeowners struggle with payments, service providers need to discuss relief options, whether or not a loan is federally supported.
In the early days of the pandemic, homeowners reported problems reaching service providers over the phone. Now, many mortgage service providers have increased their ability to be responsive to customers. Some service providers also have websites for borrowers to understand their options and seek forbearance.