Employment Gains, Rate Drops and The End of Forbearance
Movement Mortgage - April 9th 2021.
After three months of slight gains, the U.S. unemployment situation is starting to brighten a bit. According to the U.S. Labor Department, an increase in nonfarm payroll employment rose by over 900,000 jobs by the end of last week and pushed the unemployment rate down to 6%.
February’s small job gains — a total of just 49,000 for the month — were immediately overshadowed by March, which came in like a lion and pretty much stayed that way, creating nearly 1 million new jobs. The Mortgage Bankers Association (MBA) expects this heightened pace to drive nationwide unemployment numbers down below 5% by the end of the year.
Sectors hit hardest by the COVID pandemic — leisure, hospitality, education and construction — led job growth last month. And that’s a good sign for the housing industry. It’s also a good sign for consumer confidence, which improved considerably in March, during which the C.B. Consumer Confidence Index rose from 90.4 to 109.7. New jobs and more confidence put more potential homebuyers in the market while also helping current homeowners in forbearance.
What about forbearance? Forbearance allows homeowners to postpone mortgage payments without getting slammed with late fees or taking a hit to credit scores. According to the MBA, we saw a high of homeowners in forbearance, 8.55% back in June 2020. But, the economic improvements we’re currently seeing have had a positive effect on mortgages in forbearance, which dropped below 5% for the first time since the beginning of the pandemic. And for over four straight weeks now, homeowners resuming their mortgage payments continued to outnumber new requests for relief. Are forbearance extensions possible? According to Inman, close to one in five borrowers in extended forbearance has exceeded the 12-month mark. That number will increase as we move further past the first anniversary of the start of the pandemic. In fact, almost a million people will reach their 12-month forbearance anniversaries this month and next. Even as vaccine rollouts and the pace of economic activity continue to pick up, many homeowners still need forbearance support. Those who are still struggling financially due to the pandemic and are thinking of extending forbearance beyond the 12-month point will need to contact their mortgage servicer. Extensions won’t be given automatically: servicers cannot extend forbearance terms without the borrower’s consent.
Which mortgages qualify for forbearance extensions?
While the Biden administration recently announced an extension of the enrollment window for requesting COVID forbearance — until June 30 for FHA, VA and USDA loans — homeowners who entered forbearance on or before June 30, 2020, also become eligible for up to six months of additional forbearance from those agencies.
As reported by the Tampa Bay Times and NerdWallet, there are options to extend forbearance to a total of 18 months. These extensions are available for most home loan types but depend on when the initial mortgage forbearance began.
For Fannie Mae or Freddie Mac loans, homeowners must have entered forbearance by February 28, 2021.
For FHA, VA and USDA mortgages, homeowners must have entered forbearance by June 30, 2020.
The good news for homeowners is that approximately 70% of home loans fall into the above categories. It should be reinforced, though, that homeowners granted COVID forbearance won’t be expected to make up missed payments all at once. Depending on which agency backs the loan, homeowners may be able to apply for a loan modification, enter into a repayment plan or defer repayment until they refinance the loan or sell the home.
Oversight from the CFPB
Some mortgage industry analysts are worried that the housing market might be facing another crisis once all these forbearance programs expire later in the year. Additionally, mortgage companies could face severe penalties if they don’t take proactive steps to prevent the looming “deluge of foreclosures” that remains a possibility.
Last week, the Consumer Financial Protection Bureau (CFPB) issued a warning tied to forbearance relief. The bureau urges mortgage servicers to immediately start reaching out to affected homeowners to advise them on ways they can modify their loans and hopefully avoid foreclosure.
“There is a tidal wave of distressed homeowners who will need help,” Dave Uejio, the CFPB’s acting director, said in a statement. “Servicers who put struggling families first have nothing to fear from our oversight, but we will hold accountable those who cause harm to homeowners and families.”
A recent HousingWire article cited that the CFPB will scrutinize how well servicers are:
Being proactive. “Servicers should contact borrowers in forbearance before the end of the forbearance period, so they have time to apply for help.”
Working with borrowers. “Servicers should work to ensure borrowers have all necessary information and should help borrowers in obtaining documents and other information needed to evaluate the borrowers for assistance.”
Addressing language access. “The CFPB will look carefully at how servicers manage communications with borrowers with limited English proficiency and maintain compliance with the Equal Credit Opportunity Act and other laws.”
Evaluating income fairly. “Where servicers use income in determining eligibility for loss mitigation options, servicers should evaluate borrowers’ income from public assistance, child support, alimony or other sources in accordance with the Equal Credit Opportunity Act’s anti-discrimination protections.”
Handling inquiries promptly. “The CFPB will closely examine servicer conduct where hold times are longer than industry averages.”
Preventing avoidable foreclosures. “The CFPB will expect servicers to comply with foreclosure restrictions in Regulation X and other federal and state restrictions to ensure that all homeowners have an opportunity to save their homes before foreclosure is initiated.”
Weekly Mortgage Rate Update The Freddie Mac weekly survey shows the average rate for a 30-year fixed mortgage is 3.13%, which is 0.05 points lower than last week and down 0.2 points from this time last year. It’s the first decline in mortgage rates in two months. Economic recovery — along with stimulus checks and a projected rebound in the labor market — is expected to bolster purchase demand. “There might even be more intensity this year,” said Fannie Mae Senior Vice President and Chief Economist Doug Duncan, “since 2020s spring homebuying season was limited by virus-related lockdowns.” The interest rate drop brings another opportunity for those who didn’t refinance during periods of historic lows in 2020. Borrowers need to act fast, though, as treasury yields are already recovering. According to another article in HousingWire, recent comments by the Fed could potentially push rates back up by next week’s time.
ABOUT THE AUTHOR: MOVEMENT STAFF The Market Update is a weekly commentary compiled by a group of Movement Mortgage capital markets analysts with decades of combined expertise in the financial field. Movement's staff helps take complicated economic topics and turn them into a useful, easy to understand analysis to help you make the best decisions for your financial future.
MATTHEW STEWART REAL ESTATE TEAM @ eXp Realty