More homeowners asked for their monthly mortgage payments to be delayed in early May, according to recent data by the Mortgage Bankers Association, but the volume of requests has moderated.
The share of mortgages in forbearance as of May 10 was 8.16%, up from 7.91% in the prior week, according to the trade group’s recent forbearance and call volume survey. That translates to 4.1 million home loans in forbearance, according to the MBA.
“The pace of forbearance requests continued to slow in the second week of May,” said Mike Fratantoni, MBA’s chief economist. “But the share of loans in forbearance increased.”
Ginnie Mae, which guarantees securities backed by FHA and VA loans, had 11.26% of loans in forbearance, up from 10.96% in the prior week. FHA and VA borrowers were most likely to be employed in the sectors hardest hit by the coronavirus crisis.
The percentage of mortgages backed by Freddie Mac and Fannie Mae in forbearance was 6.25%, up from 6.08% the previous week.
‘Fear of the unknown’
Precaution rather than necessity may be a factor in the uptick of homeowners requesting forbearance.
“I think that a lot of people immediately take forbearance like corporates were taking loans,” said Bob Tait, a mortgage broker at Motto Mortgage in Pennsylvania. “They want to preserve cash due to their fear of the unknown.”
About 7 in 10 homeowners who requested forbearance don’t necessarily need it financially, according to personal finance site Lendingtree.com.
One of Tait’s clients declared forbearance even though she could pay her monthly mortgage and had a strong credit profile. Her husband had recently died, and she wanted to access some of the equity in her home. Despite having a 700 credit score, she was denied a cash-out refinance after the bank saw she had requested forbearance.
Even after she realized her mistake and paid three months of mortgage payments in advance, she still was not approved.
But all that is changing. The Federal Housing Finance Agency, the body which regulates the secondary mortgage market, recently loosened refinancing rules for borrowers in forbearance.
"Homeowners who are in COVID-19 forbearance but continue to make their mortgage payment will not be penalized," FHFA Director Mark Calabria said in a statement. "Today's action allows homeowners to access record low mortgage rates and keeps the mortgage market functioning as efficiently as possible."
Should you consider forbearance?
Take forbearance only if you’ve been affected financially by a coronavirus-related hardship, said Brandon Renfro, assistant professor at East Baptist University. Banks will most likely be able to reach a favorable solution with you.
“If you’re not trying to milk the system or lie to the lender, the odds are that they’ll pull a fast one on you are pretty small,” Renfro said. “If you’ve been economically affected by the virus and shut down, then take the forbearance and work out a repayment plan with your lender.”