Critical arrears fall underneath an necessary benchmark

The number of borrowers whose payments were 90 days or more late but were not in foreclosure has fallen below 1 million for the first time since May 2020, according to Black Knight.

Last month, 946,000 serious arrears were recorded. That's down from 1,026,000 in November and 2,146,000 in December 2021, but it's about double the historically low level before the pandemic.

The severe arrears rate is considered a key gauge of the plight of the mortgage market and is expected to be even more revealing now that most people with coronavirus emergencies have abandoned forbearance plans and more foreclosure restrictions have been lifted.

"Foreclosures could progress faster in the coming months as protections [Consumer Financial Protection Bureau] expired on January 1, 2022," noted the Federal Reserve Bank of Philadelphia in its latest monthly forbearance and delinquency report.

Although it has managed to bring severe arrears below 1 million despite some pandemic-related safeguards, it is worth noting that borrowers are still getting some support from increased government loss-mitigation programs and the Homeowner Assistance Fund. In addition, coronavirus variants such as Omicron are still wildcards.

A slight resurgence of new forbearance plan filings was seen in Black Knight's separate weekly report, reflecting some restarts but also a pause in processing that typically occurs mid-month.

How seriously defaulting borrowers who exit these plans will fare when they switch to mitigation remains to be seen. The Philadelphia Fed noted in its most recent report that half exited with plans without losses and that this trend has strengthened slightly.

The Federal Housing Finance Agency's latest monthly report also showed that home preservation activity for mortgages was slowing, although some of this may reflect the fact that the state-sponsored companies it oversees have had particularly low forbearance rates that continue to fall.

"Initiated forbearance plans fell 14% from 26,648 in September to 22,890 in October," the FHFA said in its report. "The total number of loans forborne decreased from 320,009 at the end of September to 244,070 at the end of October, representing about 0.81% of total loans being serviced and 34% of total loans past due."

The number of completed home preservation orders fell to 65,735 from 69,869 in October, of which 13,831 were forbearance plans, down from 14,604 in the previous month.

The FHFA also saw a slight increase in more recent defaults as longer-dated defaults have declined, although the latter category is almost double.

At the end of October, 244,584 loans at GSEs were 30 to 59 days past due, up from 218,894 the previous month. Mortgages delayed by 60 days or more fell to 467,437 from 508,635.

"The 30- to 59-day delinquency rate rose to 0.81%, while the severe delinquency rate fell to 1.40% at the end of October," the FHFA said in its report.

Consistent with the fact that distressed borrowers who remain tend to have more entrenched and complex hardships, the FHFA also saw a decrease in the use of forbearance plans. Deferrals are used by borrowers who can resume regular payments if they postpone missed payments until the end of their loans, and are generally not an option for those on reduced incomes.

"The number of borrowers who received payment deferrals after entering into a COVID-19-related forbearance plan fell 6 percent from 49,140 in September to 45,965 in October," the FHFA noted.

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