Without Government Relief Mass Foreclosures To Follow Soon

U.S. homeowners looking to delay making mortgage payments is growing, which is a sign that the economic recovery is facing a stumbling block.

According to the Mortgage Bankers Association, the number of mortgage borrowers seeking forbearance relief rose to its highest level in 1st week of December.

On Monday, the trade group said, the companies that collect payments received the highest level of call volume which is a sign of growing distress among homeowners.

Mike Fratantoni, chief economist at the MBA, in a statement, said that it is not surprising to see more homeowners seeking relief as the Covid cases are rising and so are the long-term unemployment rates.

The turnaround is uneven, when the U.S. household net worth reached a record of $123.5 trillion in the third quarter, almost 4 million workers have been unemployed for more than 27 weeks. 

Though the economy is showing signs of recovery the percentage of homeowners that have started seeking forbearance is rising.

Many Homeowners have taken a break and are delaying payments under a U.S. forbearance program. 

In the 1st week of December, the total percentage of loans in forbearance edged lower to 5.48% from 5.54% the previous week. 

The MBA said, that there was a 0.12% rise in the number of borrowers looking to enter forbearance.

While we are still waiting for relief measures, some borrowers whose loans are in forbearance have to start making payments, in some cases as soon as the end of March. 

When that happens, many homeowners will have to either pay their mortgage, or convince their lender to ease the terms of their loan, or to default.

Don Brown, senior managing director at the mortgage analytics firm RiskSpan Inc. in Stamford, Connecticut said, the prospect of so many borrowers defaulting would lead to chaos that would come from mass foreclosures and may prompt lawmakers to agree on more relief for homeowners.

The poorest of mortgage borrowers who took advantage of the government programs allowing them to put minimal money down on their homes are under the most stress. 

According to the MBA, those loans, which is about 7.68% of the loans in this week are in forbearance, which is usually bundled into securities known as Ginnie Mae mortgage bonds. 

That’s lower than last week, yet it’s still more than double the percentage for conventional borrowers.

According to analysts at Nomura Holdings Inc. in 2021, the percentage of Ginnie Mae borrowers in forbearance may decline, borrowers who remain in the program will likely be from households under greater economic stress.

Even with the forbearance program, some borrowers may not know they’re eligible for relief resulting in rising in delinquencies.  

Though delinquencies are below their financial crisis peak of around 10% about 7.7% of loans were delinquent at the end of the third quarter.

Kirill Krylov, a senior portfolio strategist at Robert W. Baird & Co., said, that the chances of extension of the forbearance deadline are the logical thing to do.