The Data & Analytics division of Black Knight, Inc. released its latest Mortgage Monitor Report. As Black Knight reported June 5, forbearance volumes fell for the first time since the crisis began between May 26 and June 2, the report states.
As Black Knight Data & Analytics President Ben Graboske explained, the focus of industry participants, especially servicers and mortgage investors, now must shift from pipeline growth to pipeline management and downstream performance of loans in forbearance.
“The first decline in the number of homeowners in active forbearance volumes is undoubtedly a good sign, particularly coming as it does on the heels of an overall trend of flattening inflow,” Graboske said in the report. “Of course, the shift from pipeline growth to pipeline management presents its own set of challenges for servicers and investors. The good news is that equity positions among homeowners in forbearance are by and large strong. Nearly 80 percent of homeowners in active forbearance have 20 percent or more equity in their homes, providing homeowners, servicers and regulators with options for helping to avoid downstream foreclosure activity and default-related losses.
“Just 9 percent have 10 percent or less equity, typically enough to cover the cost of a sale of a property with another 1 percent underwater on their mortgages,” Graboske added. “Of course, this leaves a population of nearly half a million homeowners who may lack the necessary equity to sell their homes to avoid foreclosure in a worst-case scenario.”
Black Knight, looking at this population by investor, sees the share of low and negative equity borrowers in forbearance is much higher among FHA and VA loans. This segment, which has the highest forbearance rates overall, sees 19 percent of homeowners holding 10 percent or less equity in their homes, according to Graboske.
And despite 25 percent of the workforce filing for unemployment benefits, just 9 percent of mortgages are currently in forbearance. Further, in April, nearly half of homeowners in forbearance plans made their April mortgage payments. Just 22 percent of those in forbearance as of May 26 have made their May payment, signaling another rise in the national delinquency rate is likely to be reflected in May’s data.
“With expanded unemployment benefits set to end on July 31, it remains to be seen what impact that may have on both forbearance requests and overall delinquencies," Graboske said.
Black Knight also revealed that with April prepayment rates hitting a 16-year high, the Mortgage Monitor also looked at the ways in which forbearance and overall delinquency increases have impacted refinance incentive.
With rates at 3.15 percent, there are 14 million borrowers who could save at least 0.75 percent on their current interest rates by refinancing and meet broad-based eligibility criteria (current on payments, with at least 20 percent equity and credit scores of 720 or higher). The fallout from COVID-19 has impacted this population, with 4 percent of homeowners who would have otherwise met these criteria no longer being able to refinance due to delinquency (3 percent of which are in active forbearance and past due on mortgage payments, and 1 percent delinquent, but not in forbearance).
Another 4 percent are in forbearance but who remitted their April mortgage payment. Given the reduced payment activity among loans in forbearance in May, the number of homeowners who no longer meet refinance eligibility requirements may rise further as a result of missing May mortgage payments, the report stated.
The Mortgage Monitor is based upon Black Knight’s mortgage performance, housing and public records datasets.