Black Knight: 1 in 10 Homeowners in Forbearance Hold 10% or Less Equity in Their Homes
Black Knight, Jacksonville, Fla., said with its analysis of borrowers in forbearance showing forbearance volumes falling for the first time since the crisis began, industry participants – especially servicers and mortgage investors – must now shift from pipeline growth to pipeline management and downstream performance of loans in forbearance.
The company’s monthly Mortgage Monitor Report found while 46% of homeowners in forbearance as of April 30 made their April mortgage payments, just 22% of those in forbearance as of May 26 have made their May payments, signaling a likely rise in the national delinquency rate.
The report said of the 4.76 million homeowners in active forbearance as of May 26, nearly half a million hold less than 10% equity in their homes – which is typically enough to cover the costs of selling the property, if need be – with an additional 1% currently underwater on their mortgages. Nearly 80% of homeowners in forbearance have 20% or more equity, providing homeowners, servicers and regulators with multiple options for helping to avoid downstream foreclosure activity and default-related losses.
Black Knight cautioned, however, that combined loan-to-value ratios among FHA/VA loans in forbearance are much higher, with nearly 20% holding 10% or less equity in their homes. Black Knight Data & Analytics President Ben Graboske said these low-equity positions, combined with higher forbearance rates, represent a greater degree of risk among FHA/VA loans.
“The first decline in the number of homeowners in active forbearance volumes is undoubtedly a good sign, particularly coming as it does on the heels of an overall trend of flattening inflow,” Graboske said. “Of course, the shift from pipeline growth to pipeline management presents its own set of challenges for servicers and investors. The good news is that equity positions among homeowners in forbearance are by and large strong.”
Graboske noted despite just 9% of borrowers in forbearance with 10% or less equity, “this leaves a population of nearly half a million homeowners who may lack the necessary equity to sell their homes to avoid foreclosure in a worst-case scenario.”
The report also noted despite 25% of the workforce filing for unemployment benefits, just 9% of mortgages are currently in forbearance. “With expanded unemployment benefits set to end on July 31, it remains to be seen what impact that may have on both forbearance requests and overall delinquencies,” Graboske said.
Black Knight said with rates hovering near 3%, 14 million borrowers who save at least 0.75% on their current interest rates by refinancing and meet broad-based eligibility criteria (current on payments, with at least 20% equity and credit scores of 720 or higher).
“The fallout from COVID-19 has impacted this population, with 4% of homeowners who would have otherwise met these criteria no longer being able to refinance due to delinquency (3% of which are in active forbearance and past due on mortgage payments, and 1% delinquent, but not in forbearance),” Black Knight said. “Another 4% are in forbearance but who remitted their April mortgage payment. Given the reduced payment activity among loans in forbearance in May, the number of homeowners who no longer meet refinance eligibility requirements may rise further as a result of missing May mortgage payments.”