Mortgage forbearance temporarily removes the obligation for borrowers to make their monthly mortgage payment. Forbearance plans are typically used by borrowers who experienced a sudden loss of employment, a reduction in income or damage from a natural disaster.
“Mortgage forbearance provides liquidity to households and plays a vital role in mitigating the damage to homeowners during times of crisis whether it be a hurricane, wild fire, or health epidemic,” said
Insight Highlights:
- Forbearance rates in the COVID-19 period (
March 2020 toJune 2020 ) are similar in level to those experienced in those areas impacted by the major storms in 2017 (August 2017 toDecember 2017 ), but much higher than the Baseline period (January 2019 toFebruary 2020 ). The forbearance rate is 5.6% during the COVID-19 period and 5.8% during the 2017 Storms period. In contrast, in the Baseline period, the forbearance rate is only 0.09%, even though the Baseline spans a longer time horizon. - While loans with high loan-to-value (LTV) ratios are more likely to be in forbearance, almost all loans in forbearance have positive equity.
- Forbearance rates decline for borrowers with higher FICO scores.
- In the COVID-19 period, the rate increases by a factor of about 5.6 going from loans with FICO scores in the highest category (800+) at 2.0% to the lowest category (<620) at 11.1%.
- This rate increases by a factor of 13 in the 2017 Storms period (from 1.3% to 17.4%) and by a factor of 18 in the Baseline period (from 0.02% to 0.36%).
- Forbearance rates are generally higher for borrowers with higher debt-to-income (DTI) ratios.
- In the COVID-19 period, the rate increases by a factor of about 3 going from loans with DTI in the lowest category (≤ 25%) at 2.7% to the highest category (46%+) at 8.3%.
- This rate increases by a factor of 2 in the 2017 Storms period (from 3.5% to 7.2%) and by a factor of 2.2 in the Baseline period (from 0.05% to 0.11%).
- Borrowers with a higher monthly payment are more likely to enter forbearance during the COVID-19 and 2017 Storms periods.
The primary data source for the Insight was internal loan-level servicing information for
Since the beginning of the COVID-19 crisis,
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Source:
2020 GlobeNewswire, Inc., source