Black Knight said millions of troubled borrowers need to take more action to update their loans as the first round of grace periods related to the CARES law is nearing the end of 12 months.
The latest mortgage monitor showed a crime rate of 6.08% in December, compared with 3.4% in the previous year. Seriously criminal mortgages – which were paid 90 days or more late – stood at 3.43 million by the end of 2020, compared to the post-crash annual high of 3.6 million.
The leniency program gave around 6.7 million distressed borrowers an "essential lifeline" during the pandemic, Ben Graboske, president of data and analysis at Black Knight, said in the report. Of these distressed borrowers, more than 1 million are in active forbearance ahead of the pandemic shutdown, while 4.9 million have entered coronavirus-related forbearance as of March 2020.
Of the 4.9 million, 2.3 million have withdrawn from forbearance and perform, 590,000 are being paid out, 186,000 are in active mitigation and 64,000 are criminals. However, 1.478 million extended their grace period and 254,000 were in their original tenure. Most plans have a 12 month limit and a turning point for the industry is fast approaching.
"The various moratoriums that have kept foreclosure measures in check over the past 10 months could lull us into a false sense of security about the scope of the forbearance issue that we will face in late March," Graboske said. "This clearly shows the industry-wide need for waterfalls for indulgence to determine the need and willingness of borrowers while the foreclosure moratoriums remain."
The rate of those leaving forbearance has slowed recently, indicating a higher proportion of troubled borrowers. At the current pace, without additional government expansion, over 600,000 critically ill borrowers would abolish leniency on March 31, leaving 2.5 million in active plans.
The foreclosure bans kept the December rate at 0.33% – the lowest recorded percentage since late 2005 – and fell from the previous year's rate of 0.46%. A total of 7,100 borrowers have started foreclosures, compared with 4,400 in November and 39,500 in December 2019. Industry experts believe harm reduction programs will be put in place to prevent consumers from losing their homes en masse.
"We're not anticipating large amounts of foreclosures right now. We believe the training process and improving the economy will benefit a significant number of households," said Doug Duncan, SVP and chief economist at Fannie Mae, in an interview. “We learned a lot from experiments in 2009 after the global financial crisis. We still have the knowledge of these training programs and different ones have been successful for different households. "