The MBA keeps track of forbearance requests and in Q3 2020, the percentage of loans in forbearance was steady at 5.54%. While this is a drop from the reported 8.18% on July 5, 2020, we still have a long way to go. Summer 2020 saw the MBA report that Fannie Mae and Freddie Mac loans had dropped to 6.07% and Ginnie Mae dropped to 10.56%. While all of these decreases are technically good things, the rise in COVID-19 cases gives concern for the future of forbearance and ultimately defaults. So what makes COVID recession different from the 2008-2010 financial crisis? Most notably, both Fannie and Freddie proposed forbearance programs that were included within the CARES Act. In 2008, banks generally went straight to foreclosures; it wasn’t until much later that we saw short-sales and the emergence of the HARP refinance.
Mortgage rates have continued their downward trend in 2020 and refinances drove 72% of all origination activity which translates to borrowers taking advantage of historically low rates to help bring their monthly payments down. Unemployment is still an issue with more than 14.8 million people stating they lost their jobs due to their employer closing due to the pandemic while another 3.9 million have not been able to work due to the pandemic. In the same study MBA also noted that student debt borrowers who missed a monthly payment has steadied at 40%. Borrowers with student debt are more likely to have missed a rent or mortgage payment in the last six months; for instance, 10% of non-student loan borrower mortgagors have missed a payment since March, compared with 20% of student loan borrowers that have. With over 34 million student loan borrowers having missed payments in Q2 and Q3 2020, it remains to be seen if there will be additional consequences for the housing and mortgage markets as the pandemic continues to unfold.
Let me know if you have any questions or would like any estimates! Stay healthy!
by Andrew Augustyniak, Peoples Mortgage Company