Last Friday the Federal Housing Finance Agency released the Foreclosure Prevention, Refinance, and FPM Report which shows that the foreclosure prevention actions are growing in number. According to the report, there were a total of 107,609 actions that were completed by the Enterprises in November. This brings the total number of the foreclosure prevention actions to 5,499,159 since the start of the conservatorship in September, 2008. In the meantime, the permanent loan modifications have accounted to approximately 44% of these actions.
In addition to that, there were a total of 2,624 permanent loan modifications in November, 2020 bringing the totals to 2,437,133 since the beginning of conservatorship in 2008. That same month, about 14% of these modifications were the ones that had a principal forbearance, whose modifications with extend-term only accounted for just 68% of all loan modifications.
The total number of borrowers who received payment deferrals after a successful completion of the COVID-19 related forbearance plan increased from 83,404 in October to 57,133 in November. But that is not the only thing that bounced in November, though slightly, there was an increase in the initiated forbearance plans from 58,516 in October, 2020 to 59,203 in November. However, the total number of loans took a plunge from 922,589 in October to 841,977 in November which was about 2.90% of the total loans serviced and 69% of the total delinquent loans.
All through 2020, we have seen a record decline in the mortgage rates. This sparked the mortgage refinancing which parachuted to record new highs. In addition, the delinquency rates increased moderately to 1.02 percent while the serious delinquency rates dropped from 2.99 percent in October to 2.88 percent at the end of November. In the same trend, the Third Party and foreclosure sales decreased 19 percent to 602 while the foreclosure starts decreased 38 percent to 1,540 in November.
The question that most people are concerned with is the outlook of what the foreclosures will be looking like, once the government shuts down the foreclosure moratoria and the forbearance programs. Also, there have been concerns of a possibility of all those borrowers who are in forbearance ending up defaulting on their loans.
To answer this, we should not expect a foreclosure tsunami, but that doesn’t mean that mortgage servicers should relax their rules, in fact, they should be now more than ever alert. Once the foreclosure moratoria ends, experts predict a huge possibility of foreclosures. A popular opinion at the start of the pandemic was that if there were, say 2 million people in a forbearance program, ultimately, we’d have the same number of people in foreclosure. However, the way the program has worked suggests that is far from reality. According to the Federal Reserve Bank of St. Louis, there were about 500,000 borrowers who avoided foreclosures during the fourth quarter of 2020 as a result of well-coordinated relief efforts. In this case, the CARES Act forbearance program is one such example where the private sector and the government are working hand in hand to accomplish a positive outcome.
Surprisingly, the program has outdone itself in that it has allowed millions of people to get through the worst crisis without losing their shelter and also giving them adequate time to get back on their feet financially once the pandemic is under control. Still, we recognize that the number of people still in the forbearance program is huge and what happens to them as they plan to exit still remains unknown!