As of April 30, more than 3.8 million U.S. homeowners were in COVID-19-related forbearance plans, representing 7.3% of all mortgages – however, the rate of increase appears to be slowing, according to Black Knight’s Mortgage Monitor report.
Still, the software, data and analytics firm warns that forbearance requests could surge again in May, due to rising unemployment.
“After surging at the beginning of April and then rising again near the 15th – when most mortgages become past due and late fees are charged – the number of new forbearance requests has declined in recent weeks,” says Ben Graboske, president of the analytics and data division for Black Knight, in the report. “While total forbearance volumes continue to mount, daily inflow has begun to taper off. Between 53,000 and 102,000 new plans have been put into place over each of the [nine days ended April 30], and even the largest single-day volume was less than a quarter of what we saw at the start of April – and may see again next week.
“What remains an open question at this point is to what degree forbearance requests will look like at the beginning of May – when the next round of mortgage payments become due, and with nearly 30 million Americans newly unemployed in the last month,” Graboske says. “Once we have a sense for whether there is a similar spike in forbearance requests around the beginning of May, we’ll be in a much better position to more accurately forecast possible scenarios.”
The slowdown in the rate of forbearance requests is reason for some optimism – but as Graboske points out, even if the rate slows by 10% per day, “the number of forbearances could peak at approximately 4.5 million in the coming months.”
“Should current forbearance volumes hold steady through mid-June, more than 8 million homeowners could enter into forbearance plans, representing 16 percent or more of all mortgages,” Graboske says. “If that adverse scenario holds true, servicers would be required to advance $4 billion in monthly principal and interest payments on GSE mortgages alone. Even under the FHFA’s recent four-month limit on P&I advances, servicers would still be bound to make $16 billion in advance payments over that time span.”
Separately, the report also looks at prepayment activity, which surged to a near seven-year high in March due to rising refinance volume.
However, that was prior to the fallout from COVID-19 and the associated rise in unemployment and economic uncertainty. This is expected to result in a decrease in refinance activity in May – even though mortgage rates are expected to hover near record lows.
As of April 13, refi locks were nearly 80% below their early-March peaks, the firm’s data show.