Of the 6.1 million homeowners who have been in COVID-19-related forbearance plans, 41%, or 2.4 million, have since exited, with the vast majority of those currently performing, according to Black Knight’s Mortgage Monitor report.
And while that might seem like good news, it appears that the remaining 3.7 million might have a longer path to exiting forbearance.
“When COVID-19 first began to impact the mortgage and housing markets, there was no easy historical precedent by which to gauge the fallout, so we looked to mortgage performance in the wake of recent recessions and natural disasters for clues,” says Ben Graboske, president of the data and analytics division of Black Knight, in the report. “And for the first several months of the pandemic, the performance impact of COVID tracked relatively closely to that of major hurricanes.
“Those trends have since begun to diverge, however, and looking at the three-month average rate of improvement since May’s peak in mortgage delinquencies suggests a longer recovery timeline,” Graboske adds. “At the current rate of improvement, delinquencies would remain above pre-pandemic levels until March 2022.
“What’s more, when the first wave of COVID-19-related forbearance plans reach their 12-month expiration period, we would still have a million excess delinquencies,” Graboske says. “As early-stage delinquencies have already returned to pre-pandemic levels, the bulk of these will be seriously delinquent when the forbearance clock runs out – and serious delinquencies have yet to peak, increasing yet again – albeit more mildly – in August.”
Of those borrowers who remain past due, 267,000 are in active loss mitigation with their lenders.
As of the end of the month, about 54,000 loans were past due but not in active loss mitigation. Of those, 70% were already past due in February – before the pandemic began to impact mortgage performance
Black Knight’s data also show that record levels of equity continue to help mitigate foreclosure risk, with only 9% of homeowners in forbearance having less than 10% equity in their homes.
Graboske says the “multiple mitigating factors could help to reduce any resulting foreclosure wave.”
“First and foremost, while recovery has been slow and incremental, the bulk of homeowners who have come out of forbearance are currently performing on their mortgages,” he says. “That’s roughly a third of the 6.1 million homeowners who’ve been in forbearance at one time or another since the pandemic began. Of those no longer in forbearance but still past due, the vast majority – some 267,000 – are in active loss mitigation programs with their lenders. Just 54,000 loans at present represent significant risk – having left forbearance, are past due and not engaged in loss mitigation efforts. Seventy percent of those were already delinquent in February, before COVID became a factor.
“Furthermore, American homeowners now have the most equity available to them in history,” he adds. “Of those in forbearance, just 9% have less than ten percent equity in their homes, which offers both borrowers and lenders multiple options in lieu of foreclosure.”
Even when applying distressed valuations to the more than 2.5 million homes either 90 or more days past due or in active foreclosure, the report found that tappable equity hit another record high in the third quarter, as home prices continued to rise across much of the country.
In total, nearly 45 million homeowners have tappable equity in their homes, the largest volume ever.
The average homeowner now has nearly $125,000 in tappable equity; an increase of more than $3200 from last year – also a record.
These strong equity positions help to provide a backstop to elevated delinquency levels and slow recovery from COVID-19-related impacts.