Over the first week of the year, the number of mortgages in active forbearance plans in the U.S. fell by 92,000 (a decline of 3%), the largest weekly drop since early November. The decline was driven by the large volume of quarterly forbearance plan expirations at the end of December, many of which were reaching their nine-month point.
There was improvement across all investor classes this week, with FHA/VA forbearances falling 33,000 (-2.8%), a 32,000 (-3.3%) decline among GSE-backed loans and a 27,000 (-3.9%) reduction among loans held in private label securities or banks’ portfolios.
Despite the decline, this represents a troubling slow-down in the rate of improvement.
The 3% decline in the first week of January fell starkly short of the 9% decline seen in the first week of July (which brought about the first quarterly wave of expirations) And it pales in comparison to the 18% reduction in the first week of October when plans began to reach six-month expirations.
While the monthly rate of decline has varied over the past seven months of the pandemic due to fluctuations in scheduled expiration activity, the average rate of improvement over the past 30 days has been -1% month-over-month, down from -7.5% month-over-month on average from June through November.
December marked the last significant wave of quarterly expirations before the first plans begin to reach their 12-month points at the end of March. As such, it’s likely we’ll see only modest improvement in overall forbearance volumes between now and then.
As of Jan. 5, 2.74 million (5.2% of) homeowners remain in COVID-19-related forbearance plans, including 3.3% (932,000) of GSE mortgages, 9.3% (1.13 million) of FHA/VA loans and 5.2% (673,000) of portfolio-held and privately securitized loans. Together, they represent $547 billion in unpaid principal.
Forbearance plan starts fell again this week, with both new starts and total starts hitting their lowest levels since the early stages of the pandemic, and restarts at their lowest since early October.
There were 146K removals, the largest weekly volume since the first week of November. Even so, just 35% of loans with expiring plans were removed from forbearance in the first week of January as compared to more than 60% on average in the first week of each of the previous three months. The decline in forbearance plans removals appears to be the largest contributing factor to the slowing rate of decline among active forbearance plans.