While the average borrower who has suspended their payments due to pandemic hardship most often chooses to resume their original obligations and pay amounts owed later, affordability modification requests have now increased for the first time in a year .
There were 11,434 loan modifications as 130,014 deferred payments in the first quarter, compared to 9,347 and 185,112 (each) in the previous fiscal period, the Federal Housing Finance Agency reported Tuesday. Mods haven't been that high since Q1 2020 at a total of 16,773.
This suggests that while loan modifications are still well below normal levels, they are gradually increasing the workload on mortgage servicers. Changes, but not deferrals, require an assessment process similar to the income qualification for a new loan.
"The forbearance gives the borrower their existing payment back and … it's much easier operationally than the mod that requires taking the loan," said Matt Tully, chief compliance officer and head of agency affairs at Serviceing Technology Company Sagent , in an email.
While mortgage servants who handle borrower payments have traditionally been able to handle their workload with a mix of cross-trained staff and automation, that's partly because employees handling foreclosures have more time due to temporary government bans, Tully noted.
"To cope with an influx of deferrals and mods, some of our service customers have moved staff who have traditionally been involved in foreclosures – this work cannot currently be done due to the moratorium – to focus on working with borrowers on retention options," he said.
If the government lifts foreclosure and cease-and-desist bans, servicers may need to consider adding technology or hiring staff. However, due to repeated extensions of the moratoria and falling rates for suspension payments, they were reluctant to invest early. Suspensions of payments, known as forbearance, now make up less than half of the home-keeping actions by the two pro-government agencies the FHFA oversees, Tully noted. At press time, the two agencies, which focus on servicing low- to middle-income borrowers, were due to lift their foreclosure bans by the end of this month and had a particularly low forbearance rate of just over 4% compared to the market as a whole.
"This will all be interesting … when the moratorium on foreclosure actually expires," Richard Koss, chief research officer at mortgage analyst Recursion, said in an interview. "Then you really know what's going to happen."