- Industry experts forecasting that mortgage distress will rise but not to â€œsky-highâ€ levels when forbearance ends
- Analysis highlights plight of low-income homeowners
Anticipation There â€œStill Going To Be Strugglingâ€
Researchers at the Federal Reserve Bank of New York underlinedÂ that low-income homeowners and those with low credit scores will remain â€œmore vulnerableâ€ once the mortgage forbearance program expires.
Wilbert van der Klaauw, senior vice president with the NY Fed, said, â€œWe anticipate that they are still going to be struggling.â€
Correlation Between Credit Scores and Forbearance Participatio
Take a look at the comparisons of how credit scores have influenced forbearance participation levels during the pandemic and in March 2021:
- Under 620
- 29% in forbearance at some point
- 16% in forbearance in March 2021
- 620 and 659
- 20% in forbearance at some point
- 9% in forbearance in March 2021
- 660 and 719
- 16% in forbearance at some point
- 6% in forbearance in March 2021
- 720 and 759
- 12% in forbearance at some point
- 4% in forbearance in March 2021
- 8% in forbearance at some point
- 2% in forbearance in March 2021
Factors Likely to Affect Rise of Late-Payment Rates
Several factors will likely determine the rise of late-payment rates once forbearance ends.Â Those factors include, according to van der Klaauw:Â
- Progress of US economic recovery
- Whether or not housing prices fall in coming months
- Whether or not mortgage servicers give struggling borrowers more flexibility while exiting forbearance
Rough Estimate of Serious Delinquencies â€“ 3.8%
The New York Fed estimates that serious delinquencies (mortgage borrowers who are at least 90 days late in their payments) could run as high as 3.8% once forbearance ends.Â Â Remember that serious or late-stage delinquency often precedes foreclosure.
The good news is that, currently, it seems â€œimprobableâ€ serious delinquency rates will be as high as the more than 6% levels hit after the 2008-09 crisis.
Non-Mortgage Delinquencies Up to 5.8% in March 2021
Borrowers who have participated in mortgage forbearance during the pandemic have also become delinquent on non-housing debt such as auto and/or credit card debt.
That non-mortgage delinquency rate rose to 5.8% in March.
Clearly, many borrowers prioritized or chose to pay their mortgage loans over their other loans.
Matt Komos, vice president of research and consulting with TransUnion,said, â€œâ€¦weâ€™ve seen that the mortgage loan has become a priorityâ€¦For many consumers, their home has become their home office or become a safe haven through the pandemic.â€
Researchers with the New York Fed believe that non-mortgage delinquencies would have been much higher than 5.8% without the freed-up cash made available to mortgage borrowers via the forbearance program.
Thanks to National Mortgage News.
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