It’s been nearly two months since the number of borrowers who applied for forbearance on their mortgage began spiking, but it looks like the forbearance curve may be flattening. New data from the Mortgage Bankers Association shows that the overall rate of forbearance is still on the rise, but the rate at which that figure is increasing has slowed to the lowest level since the crisis began.
According to the MBA, the total number of loans now in forbearance rose to 8.16% during the week ending May 10, up from 7.91% in the previous week. But the MBA notes that the 0.25% increase in borrowers taking forbearance is the smallest weekly increase since the week of March 16, suggesting that the economy may be starting to reawaken after the shutdowns.
Experts See Progress
Under the CARES Act, homeowners with federally backed mortgages can request forbearance for as many as 12 months. As the country’s economic condition worsened, more borrowers began requesting forbearance, leading to a spike that was seen throughout April.
“The pace of forbearance requests continued to slow in the second week of May, but the share of loans in forbearance increased,” said Mike Fratantoni, MBA’s chief economist. “There has been a pronounced flattening in loans put into forbearance – despite April’s uniformly negative economic data, remarkably high unemployment, and it now being past May payment due dates.”
The MBA data shows that things may be beginning to slow down. But as the MBA notes, the overall rate of forbearance did still rise to 8.16%, meaning approximately 4.1 million homeowners are in forbearance. The long-term effects of widespread forbearance are not expected to manifest until the forbearance period is over, roughly a year after the passage of the CARES act. Because forbearance does not erase what you owe, the MBA expects a wave of mortgage defaults that roughly coincides with the end of the forbearance period as homeowners are confronted with payment significantly larger than what they were before the COVID crisis.
Refinance and Purchase Applications on the Rise
Record low mortgage rates are sustaining a wave of refinancing, helping homeowners lower their mortgage payments and save money during these challenging times. Beyond that, the MBA notes that the recent increases in purchase applications is a sign that housing demand is strengthening as more states ease restrictions on activity and people get back to work.
As always, if you have any questions or comments, or need the advice of an experienced local REALTOR®, please do not hesitate to contact Sellstate Alliance Realty and Property Management, as we are always happy to help.