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As of mid-June, 5 million U.S. homeowners had requested mortgage forbearance. But over the past six weeks, the total number of mortgages in forbearance has declined to 7.74% of overall portfolio volume from 8.39%.
This is a positive development, as fewer Americans are struggling to stay current on their mortgage payment schedules. Homeowners are seeking other ways of lowering their monthly payments. Some 2 million Americans have already refinanced their mortgages, and with rates dropping to record lows in recent weeks, refinancings continue unabated.
To be sure, about 4.1 million homeowners are on a forbearance plan. Borrowers and lenders must partner to make sure all homeowners can get back on their feet. The company I lead is one of the largest U.S. housing lenders, and currently we’re processing fewer forbearance requests. Here’s some of what we’re seeing:
1. Those in forbearance are still making payments: Some 43% of our customers who are in forbearance have made three months of mortgage payments. This is more pronounced among homeowners with a higher FICO score, no history of delinquencies in the past 24 months, and lower loan-to-values on their mortgages. Some 50% of homeowners who went on a forbearance plan from March to May have made their second monthly payment. We’re also seeing extension requests for forbearance: 42% of those who entered a plan in April have requested more time and 10% have exited forbearance for a payment deferral or loan modification program. The fact that many who are on a forbearance plan are still making their monthly payment suggests that homeowners are cautious about their financial situation, viewing these plans as a type of insurance if they lose their job or are furloughed.
“ There is a correlation between the areas with spiking cases and higher requests for forbearance. ”
2. The location of those seeking forbearance is changing: New York residents had the highest ratio (68%) of forbearance requests to the unemployment claim rate. But as the rate at which COVID-19 cases moderates in the state, forbearance requests are declining. Since June, in contrast, we’ve seen an increase of 11% in forbearance requests in those living in Texas and 4% in Florida, both of which are experiencing a surge in cases. Indeed, there is a correlation between the areas with spiking cases and higher requests for forbearance.
3. Job furlough is the top reason for seeking forbearance in key states: For example, 29% of those requesting forbearance in Florida cited furlough as their reason, whereas 25% said it was due to a job loss. In New York, 32% of those seeking forbearance cited furloughs versus 24% who lost a job and 6% who were ill. This trend is likely to continue as there are reports of looming furloughs in the travel, leisure and even government sectors.
4. Generation X is most affected: Gen Xers have the highest rate of those seeking forbearance among our customers. Some 8% of our customers in this cohort are in active forbearance, compared to 6% of millennials, 6% of Generation Z, 5% of baby boomers, and 3% of the silent generation. This trend is more pronounced among those with lower credit scores: 36% of Gen Xers with a FICO below 680 are in active forbearance. It makes sense that younger demographic groups seek forbearance in higher rates compared to older generations, as they are earlier in their career and may not have as solid of a financial footing.
The declining rate of those seeking forbearance suggests that fewer Americans are struggling with mortgage payments. But if the pandemic spreads and worsens, the recent positive forbearance trend could be temporary. It’s incumbent for all lenders to keep refining their forbearance plans to best serve their customers who are most in need.
Sanjiv Das is the CEO of Caliber Home Loans. Previously, he was the CEO of CitiMortgage.
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