Protesters march for housing justice in old town Chicago, IL, on June 30, 2020, calling for a lifting of the Illinois rent control ban and a lifting of rent and mortgage payments during the COVID-19 pandemic.
Max Herman | NurPhoto | Getty Images
More and more borrowers are getting their mortgages back up to date after defaulting on payments due to the economic hardship caused by the coronavirus pandemic. However, the improvement is slowing dramatically, which could hit the mortgage market harder than previously expected in the coming months.
Black Knight, a mortgage technology and data company, said just over 5% of all mortgages, or 2.74 million, are still in government and private Covid-related mortgage bailouts as of Jan. 5. These plans allow borrowers to defer their monthly payments for up to a year. Payments are then made either at the end of the loan or when the home is sold.
The number of lenient borrowers over the past week is down 92,000, or 3%, from the previous week. This is the biggest drop in over a month, but only because a large number of plans expired in late December. The mortgage bailout is offered in increments of 3 months. Borrowers must reapply every three months.
While it’s good news that so many people got out, the concern is that this is actually the smallest end-of-quarter improvement since the bailout began in April.
For comparison, in early July, after the first quarter, the numbers were down 9%, and in early October, after the second quarter, they fell 18%, so the 3% decline is now well behind the improvement that the Had seen market.
“The relatively weak rate of improvement in the first week of January means there is a bigger unknown in the market than we expected a month ago,” said Andy Walden, economist and director of market research at Black Knight. “What happens next depends heavily on the homeowner’s ability to resume full or possibly amended mortgage payments when these forbearance plans end.”
And all of this is happening on the way to the one-year mark when the plan expires for those who started last April. By late November, the rate of improvement was on track to drop to 2 million forbearances by the end of March, when plans were due to expire. However, this number is likely to be significantly higher because of this now slower rate.
The only encouraging sign is that, for the first time, fewer borrowers are seeking mortgage bailouts. Total forbearance has hit its lowest level since the pandemic began, and the number of borrowers who resumed their mortgage bailout plans has hit its lowest since early October.
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