Slowdown in forbearance improvement presents new challenges

Next month is shaping up to be an “inflection point” for the nation’s housing market as almost a quarter of active forbearance plans come to an end, according to a recent Black Knight report.

Data from the analytics firm revealed that more than 600,000 seriously delinquent borrowers will reach the end of their allotted forbearance periods at the end of March, representing roughly 24% of the approximately 2.7 million homeowners who remain in active forbearance plans in mid-January.

And according to Ben Graboske, president of data & analytics at Black Knight, a slowdown in forbearance improvement may present “new challenges to recovery for seriously delinquent homeowners.”

“When nearly a quarter of all forbearance plans come to an end on March 31, at the current rate of improvement there would still be approximately 1.5 million more such serious delinquencies than before the pandemic,” said Graboske. “With that rate of improvement slowing in recent weeks, current trends suggest more than 2.5 million homeowners would still in forbearance at that point.

While early in the pandemic roughly half of homeowners in forbearance continued to make their monthly mortgage payments, that number has steadily declined. Today, it's about 12%, which suggests the people who are taking the full forbearance period afforded to them may well be experiencing prolonged financial distress and face extended challenges as they return to making payments.”

According to report, the data “clearly shows the industry-wide need for post-forbearance waterfalls to determine borrower need and readiness while foreclosure moratoriums are still in place.”

“By efficiently addressing lower-risk borrowers as they exit forbearance, focus can then shift to those more in need,” Black Knight said. “Robust portfolio monitoring, borrower outreach, loss mitigation, and regulatory compliance will only become more important as the year progresses and the industry comes to terms with the size and scope of the post-forbearance problem.”