According to Mortgage Bankers Association, as of July 5, 2020, just 4.1 million households, representing 8.18% of mortgage loan borrowers, are in forbearance (temporary postponement of mortgage payments), compared to 8.39% the week before and a recent peak of 8.55% in mid-June. In fact, it was the fourth straight week of decline. Conforming loans (approximately $765,600 in high-cost areas like the Bay Area) have even lower forbearance rate at 6.07%; over half of them are in deferral or extension plans with their lenders. Delinquent borrowers, those who missed their monthly mortgage payment(s) and may or may not have obtained forbearance from their lenders, number around 10%, or about 8.4 million of all homeowners (some of whom don’t have loans), as of June 30, according to the Census Bureau. That’s up from April, the first month after lockdown started and when around 3.4% of borrowers became newly delinquent, according to Washington Post.
One of the reasons for lower forbearance rate now is that many may have returned to work since the lockdown. However, with the upcoming July 30 end date for the $600-a-week federal enhancement to state unemployment benefits and a renewed trend back toward lockdown, the Federal Reserve Bank has sounded warning bells that forbearance and delinquency rates may yet tick up. Some of the most pessimistic forecasts has forbearance rate at as high as 20% to 30%. In any case, foreclosure rates are not expected to significantly trend up in the short run since the CARES Act, enacted in March, allows mortgage borrowers to get up to 12 months of forbearance without the risk of foreclosure. The current mortgage loan landscape is unlike anything we have ever seen, both in magnitude and pace of change. As a comparison, around 10 million Americans lost their homes during the recession that started with the financial crisis in 2008; but even the delinquency rates back then was significantly lower than what we’re seeing now. The housing market has since then more than recovered in most parts of the US and notably in the Bay Area. If you are in forbearance or are thinking about it, we are happy to give you our thoughts about the pros and cons of each option.