Fewer Homeowners Need a Mortgage Bailout

June 19, 2020

For the third consecutive week, the number of homeowners requiring mortgage relief has dropped, a welcome sign of the market’s long-term health.

As of June, 4.6 million homeowners were in forbearance, which is about 8.7% of all active mortgages, according to data from Black Knight, a mortgage research firm. The numbers have fallen by 57,000 compared to the previous week and by 158,000 from May 22, the date when mortgages in forbearance peaked.

About 6.8% of all mortgages backed by Fannie Mae and Freddie Mac are in forbearance, and 12.1% of all FHA and VA loans. However, loans held by banks or private label securities grew by an alarming 6,000 in June, according to Black Knight.

Borrowers in forbearance are eligible to delay their monthly payments for at least three months and in some cases, for up to a year.

The number of loans in forbearance represents more than $1 trillion in unpaid principal, a number that the housing market has looked at cautiously for its potential to spark a wave of foreclosures.

But the strong equity positions of those in forbearance is likely to prevent a foreclosure crisis. Nearly 80% of homeowners in active forbearance have 20% or more equity in their homes, according to Black Knight’s research. That provides an extra cushion to homeowners, servicers, and regulators to explore options to help avoid foreclosure and default losses for owners who still are unable to make payments at the end of their forbearance period. Nine percent of homeowners have 10% or less equity, which is still usually enough to cover the cost of a sale of a property. Only 1% of homeowners are underwater on their mortgage, meaning they owe more on their mortgage than their home is currently worth.

Despite 25% of the workforce filing for unemployment benefits, less than 9% of mortgages are currently in forbearance, Black Knight notes. “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,” Ben Graboske, Black Knight president of data and analytics, said in a statement on June 8.