Most Borrowers in Forbearance Have Equity

June 9, 2020

The majority of homeowners in forbearance have 20% or more equity in their properties, which may provide a protective cushion to prevent a wave of foreclosures as the pandemic wanes. Nearly 80% of homeowners in forbearance are considered equity-rich, according to data from Black Knight Data & Analytics.

As of May 26, 4.76 million homeowners, representing 9% of mortgages, were in active forbearance due to the COVID-19 pandemic. Just 9% of homeowners have 10% or less in equity, which is still typically enough to cover the cost of a sale of a property. But 1% of homeowners in active forbearance are currently underwater on their mortgages, owing more than what their home is currently worth. That leaves nearly half a million homeowners who may lack the necessary equity to sell their homes to avoid foreclosure—a worst-case scenario, Black Knight reports.

FHA and VA loans, which have the highest forbearance rates overall, tend to have homeowners in the lowest equity positions and who may be at the greatest risk for defaults, Black Knight reports.

But there’s hope for a turnaround: Fewer homeowners are taking a forbearance on mortgage payments as states begin to reopen after being shut down as an initial response to the pandemic.

“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,” says Ben Graboske, president of Black Knight Data & Analytics. “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.”