What We’ve Learned from Borrowers Exiting Forbearance

It’s been more than two years since the federal government began offering relief to mortgage borrowers struggling financially due to the COVID-19 pandemic. Since then, millions of people have taken advantage of forbearance options and kept their homes despite job loss. Meanwhile, the nation’s mortgage delinquency rate remains near historic lows.

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Overall, the response to the pandemic by our nation and the mortgage industry has been quite impressive. But what happens to borrowers after they exit forbearance? Recently, the MBA put together some numbers on this topic, which reveal some interesting insights for servicers.

What the Data Says…

According to statistics from the Consumer Financial Protection Bureau (CFPB), 8.2 million borrowers entered forbearance during the pandemic and, as of July 2022, 93% have exited. This month, the MBA’s Loan Monitoring Survey included data about forbearance exits that occurred between June 1, 2022 and September 30, 2022 and what the outcomes were.

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The MBA found a significant number of borrowers—18.3%—continued to make their mortgage payments during their forbearance period. However, another 17.3% did not, and exited forbearance without yet having a loss mitigation plan in place.

Determining mortgage payments using loan servicing software on laptop computer after exiting forbearance.

Nearly 30% of all exits resulted in a loan deferral or a partial claim, which means the unpaid payments were moved to the end of the loan term. Another 16% of exits resulted in a trial or permanent loan modification plan, while 11% of borrowers paid back their past due amount when exiting forbearance.

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In 6.6% of cases, the borrower paid off their mortgage by refinancing or selling their home, while 1.2% resulted in repayment plans, a short sale, a deed-in-lieu or other outcome.

…And What the Data Means

Our takeaway from the MBA’s numbers is that no predominant trend with forbearance exists, as the numbers varied across the board. This means that servicers that still have loans in in forbearance need to be prepared for any scenario.

There are other trends worth paying attention to as well. For example, by the end of September 2022, the total number of loans in forbearance fell, but Ginnie Mae loans in forbearance actually increased, based on new forbearance requests and borrowers who reentered forbearance plans. This indicates a significant number of first-time homebuyers with government loans are still struggling financially.

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In fact, when releasing the numbers, Marina Walsh, the MBA’s vice president of industry analysis, observed that the pace of forbearance exits is slowing, and new forbearance requests are likely to increase due to damage from Hurricane Ian in the Southeast.

Meanwhile, there’s an increasing chance that mortgage defaults could rise in the future as household debt continues to rise with inflation. Plus, the CFPB continues to increase its scrutiny of the servicing industry, beefing up enforcement on servicers that neglect borrower requests for help or aren’t doing enough to reach out to those in need.

Why the Right Tools Matter

With so many different forbearance outcomes—and regulators watching closely—it’s incumbent upon servicers to be proactive in their communications with borrowers, especially those who are having trouble resuming payments.

The trouble is that many servicers lack the tools and resources to drive those communications. Most servicers, in fact, rely on older technology platforms that have not been properly updated over the years and are simply not flexible enough to handle either the rampant increase in forbearance requests or new regulations such as the CARES Act.

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For this reason, servicers need modern technology that fosters proactive borrower communications. That’s why many servicers trust the MCC Mortgage Solutions platform, which was built to monitor a borrower’s payment history and provide servicers with alerts on when to reach out to a borrower based on predefined parameters and triggers.

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Our platform also includes comprehensive and customizable reporting capabilities for all loss mitigation options—plus servicers can choose from 31 languages so they can communicate with borrowers in their preferred language.

To find out how MCC Mortgage Solutions can ensure your borrowers requesting or exiting forbearance get the best options, just reach out to our team at 248-350-9290 or email us at info@mccmortgagesolutions.com.