Almost One-Quarter of Homeowners in Forbearance Are Still Paying

The forbearance issue that hangs over the mortgage bond market may actually be better than it seems at first glance.

Almost one quarter of all homeowners who have demanded forbearance are still current on their mortgages as of Sept. 6, according to the latestMortgage Bankers Association data. Of the 3.4 million households currently in forbearance, roughly 820,000 have not missed a payment.

“That has been one of the most surprising aspects of this entire episode,” Mike Fratantoni, MBA’s senior vice president and chief economist, said in an interview with Bloomberg. “We’ve seen that share come down over time because some of those borrowers have exited forbearance.”

Call it “strategic forbearance,” with many homeowners taking on the option, just in case. Of the Ginnie Mae borrowers in forbearance, 23.7% are current. For conventional borrowers it’s 20.6%, and for those sitting on banks’ balance sheets it’s 28.6%.

This is important, as mortgages which continue to pay are not going to be bought out by servicers, and for mortgage investors buyouts are just prepayments by another name. With loans bought out from pools at par, this can weigh on portfolio performance, especially when much of the mortgage universe is trading at a premium.

While the percentage of the overall mortgage universe in forbearance has been declining of late, when it is due to servicers buying out those loans from the pools it can be a case of merely moving it from one category to another.

For example, the percentage of the Ginnie Mae universe in forbearance has dropped to its current 9.16% from a high of 11.83% on June 21. While on the face of it this is good news, the drop was boosted by bank servicers buying out loans. This moved them to the “other” category — which has increased over that time frame — from the “Ginnie Mae” category.

The key to getting past forbearance is the job market, as though the fiscal stimulus and unemployment insurance benefits — enhanced or not — can help, they are not long-term solutions. It’s jobs that count.

“So long as the job market keeps improving and the housing market is in solid shape there is a good potential for this to keep improving,” Fratantoni said.

  • Christopher Maloney is a market strategist and former portfolio manager who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice

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