For the first time since March 2020, the national mortgage delinquency rate fell below 6% to 5.9% in January, according to data from Black Knight on Wednesday.
At the current rate of improvement, the data giant estimates 2.1 million borrowers remain 90 or more days past due though are not yet in foreclosure. While modest mortgage delinquency improvements have occurred for several months, loans considered seriously delinquent are still five times that of pre-pandemic levels.
Thanks to widespread moratoriums, borrowers have managed to avoid eviction and foreclosures for some time now. Foreclosure starts and sales activity managed historic lows in January with starts down 86% year-over-year and sales down more than 95%.
The FHFA most recently extended COVID-19 foreclosure and forbearance moratoriums to March 31, 2021 and the Department of Housing and Urban Development‘s also kicked the foreclosure can further down the road for FHA and USDA loans to June 30, 2021.
While those extensions have reduced short-term foreclosure risk, they are also serving to extend the recovery timeline, Black Knight said. But even with these continuous extensions, Black Knight estimates 1.8 million mortgages will still be seriously delinquent at the end of June when those moratoriums are slated to lift.
To accommodate the large volume of loans still in forbearance, mortgage servicers must have functional, flexible and effective forbearance processes in place. Here are some actionable steps to create that process.
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While servicers gear up to handle the million-plus borrowers that will feed through the mortgage delinquency pipeline, recent research from the Urban Institute estimates that a looming foreclosure crisis isn’t actually on the horizon.
A bevy of loss mitigation waterfalls from both the FHA and FHFA allows borrowers not in forbearance programs eligibility for loss mitigation options, including mortgage modifications. Still, not every borrower will qualify for a modification, and some will be forced to downsize or rent, the Urban Institute noted.
Borrowers also have the most equity available to them in history, and those with ample home equity could exit their home, if they needed to, with their credit intact and potentially some cash in hand.
However, approximately 626,000 of the 3.2 million delinquent borrowers have government loans in Ginnie Mae securities. Because of their high loan-to-value ratios at origination, these borrowers are likely to have less home equity.
“Our analysis shows that, even among delinquent borrowers, less than 1 percent have negative equity and 5.5 percent have near-negative equity. For comparison, in the aftermath of the Great Recession, approximately 30 percent of homes were in negative or near-negative equity, but the number is now 3.6 percent,” Urban Institute report said.
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