Mortgage forbearances tick higher as homeowners reactivate payment deferral plans

Dhara Singh
·Reporter
·3 min read

The number of mortgages in forbearance ticked higher at the end of October, according to one tracker, partly driven by homeowners reactivating expired plans.

More than 3 million mortgages were in forbearance as of Oct. 27, according to a data and analytics firm Black Knight Inc., representing 5.9% of all active mortgages and $619 billion in unpaid principal.

Only 50,000 forbearances were removed in the last week, the lowest of any during the coronavirus recovery, while 89,000 extensions were granted, the lowest level in nine weeks.

Read more: Near record low mortgage rates: Should you cash out and refinance?

Overall, the number of forbearance plans that were started is up 15% in October versus the month prior. Re-activations are up 50% month-over-month, while new forbearance activations are up only 7%.

Worried couple reading a letter sitting on a couch in the living room at home
The number of mortgages in forbearance ticked higher in the last week, according to one tracker, driven by homeowners reactivating expired plans. (Source: Getty Creative)

But better news may be ahead.

“With 365,000 plans still scheduled to expire in the final days of October, we could again see declines in active forbearance volumes over the next couple of weeks,” said Andy Walden, director of market research at Black Knight, stipulating that the positive movement is contingent on improving unemployment numbers.

1 million forbearance plans set to expire in December

Earlier this year the CARES Act allowed homeowners with loans backed by government-sponsored enterprises such as Freddie Mac and Fannie Mae to request forbearance up to 180 days, with an extra 180 day extension if needed.

This relief however did not cover private mortgages, which account for roughly 30% of the market.

“To date, mortgage servicers have primarily enacted forbearance plans in three-month increments,” Walden said. “Nearly 2.5 million forbearance plans had hit their three-month expirations in June, almost 2 million of which were extended and subsequently hit six-month term expirations in September.”

Walden said just over 1 million forbearance plans expire in December, marking the ninth-month mark for coronavirus-related forbearances.

“Homeowners with loans in forbearance should continue to be in touch with their lenders, particularly as the terms of their current forbearance approach an end,” said Danielle Hale, chief economist at Realtor.com. “In many cases, lenders are required to grant an extension of an initial forbearance term, but only if the borrower requests such an extension.”

Private and FHA loans in forbearance continue to increase

Federal Housing Administration loans and Veteran’s Administration loans make up 9.7% of all loans in forbearance. The number of government-sponsored enterprise loans, on the other hand, account for 3.9%, while 5.7% of loans are in private-label securities or banks’ portfolios.

Coronavirus economic recession. Stressed couple with masks in self-isolation over home finances and small business debts during quarantine shutdown. impact of COVID-19 pandemic Global Economy Crisis.
Federal Housing Administration loans and Veteran’s Administration loans make up 9.7% of all loans in forbearance. (Source: Getty Creative)

“The FHA population is more heavily composed of first-time, lower credit score, and/or lower down payment homebuyers, who have tended to be more heavily impacted by the recent economic downturn,” Walden said.

While GSE forbearances declined by 1,000 week over week, FHA loans saw an increase of 14,000. Private mortgages saw an uptick of 18,000.

Since stimulus talks have stalled, experts said the next administration should put mortgage forbearance as a top priority.

“With agreement on another round of stimulus still elusive, policymakers need to be mindful that financial stress for individuals can cascade throughout the financial system and economy,” Hale said. “As has been demonstrated by the success of some of the early fiscal responses, preventative measures can be quite effective.”

Dhara is a reporter Yahoo Money and Cashay. Follow her on Twitter at @Dsinghx.

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