Vast majority of forbearance now used for personal hardships

Forbearance had primarily been a remedy for borrowers affected by the pandemic since the inception of the CARES Act, but now the latest Mortgage Bankers Association numbers show most utilize it for other reasons.

Just 26.8% of the 115,000 consumers who have temporarily suspended payments are struggling due to issues linked to COVID-19, 12% have been through a natural disaster, and 61.2% are contending with more personal concerns such as death, divorce, job loss or disability.

“While forbearance is a powerful tool for delinquency surges resulting from natural disasters or major disruptions such as a pandemic, today’s borrowers are not experiencing widespread financial distress,” Marina Walsh, MBA’s vice president of industry analysis, said in a press release.

Far less than 1% or 0.23% of home mortgages had forbearance in December, down 3 basis points from the previous month, but there are other signs of a slight uptick in borrower distress.

“The overall performance of servicing portfolios — particularly government loans — declined in December. Factors such as seasonality, a changing labor market, resumption of student loan payments, and the rise in balances on other forms of consumer debt are likely at play,” Walsh said.

Prognosticators expect unemployment, which tends to be correlated with high delinquency rates, will rise to 4.5% over the course of 2024 from 3.7% at year-end 2023, she noted.

While even 4.5% is a historically low unemployment rate, there are signs of pressure building in some parts of the job market. 

“In the most recent employment report, the bulk of the growth in jobs was government and healthcare, and if you look at the non-healthcare, non-government segment of employment over the last six months, there were very few jobs added in the private sector,” Fannie Mae Chief Economist Doug Duncan said in a recent interview with National Mortgage News.

However, the outlook for the economy this year has been relatively better than it was, according to Fannie Mae, which recently backed off an earlier call for a recession due to relative strength in consumer spending to date.