Forbearance is beginning to inch its highest since October

The number of people entering into new forbearance plans has risen to a three-month high, contributing to a slight rebound in activity after a long downtrend.

On a weekly basis, an increase in launches has boosted the number of active plans by 19,000, or 2.3%, to 835,000, according to Black Knight's McDash Flash mortgage performance data. In comparison, pandemic-related suspensions of payments rose by 36,000, or 4.6%, in the previous week.

"The four-week average for fresh start activity is now at its highest level since October," Andy Walden, vice president of market research, wrote in a blog post, noting, "This is a trend worth watching."

The volume of mortgages in forbearance for different product types is similar in number by number, but the dollar amount is higher for those purchased by state-sponsored companies Fannie Mae and Freddie Mac, and the proportion affected remains somewhat for private and state-insured individuals increased loan.

The number and proportion of forbearance was highest at 289,000 for mortgages secured by either the Federal Housing Administration or the Department of Veterans Affairs, representing loans with an unpaid principal of $51 billion, or 2.4%. For personal loans held in bank portfolios or securitized, the corresponding figures were 272,000, $47 billion, or 2.1%. Forbearance mortgages held by Fannie and Freddie totaled $274,000, $55 billion, or 1%.

The number of people on hold has increased in all three categories over the past week. The number of FHA/VA and personal loans increased by 9,000 in each category, a 9.6% increase for the former but only a 3.3% increase for the latter. Fannie/Freddie loan count rose 1,300, or just 50 basis points.

Private loans tend to have relatively higher forbearance rates, in part because they have not been afforded the same federal protections as government-related loans, and the FHA and VA programs were designed to serve borrowers with elevated home affordability barriers, so the people involved may have done so have less financial buffer against cases of hardship than others.

Despite a net increase in forbearance activity over the past week, it's still 6% down from a month ago.

Since mid-month numbers typically reflect a period when exits are processed more slowly, exits could prove stronger in the next report.

More than 100,000 plans were terminated or renewed at the end of the month, and more than a third of those are expiring in January.

While the significant drop in forbearance since the peak of the pandemic suggests that many have recovered from related difficulties, the recent spike suggests some new strains from variants or other causes.

Officials are hoping that other government actions, such as Ginnie Mae's recent rationalization of certain modifications of FHA loans to more affordable terms or state-distributed money from the federal homeowner assistance fund, will help those in need. However, the types of housing assistance available vary by state, and some jurisdictions like Illinois may not offer them until after January.

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