A new study from Freddie Mac shows that mortgage forbearance has played an important role in helping mortgage borrowers remain in their homes during COVID-19.

'Without forbearance, many of these households would have been forced to sell their homes or would have defaulted on their mortgages, which, in turn, could have depressed the housing market, leading to further defaults in a vicious cycle,' the report said.

Forbearance rates for home mortgages between March and June were almost 60 times higher than they were before the pandemic; the forbearance rate increased to 5.6% from 0.09% during a baseline period of January 2019 to February 2020, just before the start of the COVID-19 crisis. The current rate is comparable to 2017 in the aftermath of several hurricanes and tropical storms including Harvey, Irma and Maria, Freddie Mac said.

COVID-19-related mortgage forbearances reached a peak in May 2020, with more than 4 million mortgages in forbearance-representing about 8% of outstanding mortgages and $1 trillion in mortgage debt, Freddie Mac said, adding that through forbearance, homeowners have delayed about $4 billion in mortgage payments each month.

Loans with higher forbearance rates shared characteristics with those associated with higher default rates including a high loan-to-value ratio, low credit scores and high debt-to-income ratio, The rate of forbearance was lowest for loans with low monthly payments, according to the study, which also noted that 'forbearance largely occurs for households with positive equity that are experiencing a short-term liquidity problem. Among those who enter forbearance during the COVID-19 period, 0.3% of loans have negative equity. This is higher than for the entire sample, where only 0.1% of loans have negative equity.'

(C) 2020 Electronic News Publishing, source ENP Newswire