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Loans in coronavirus mortgage bailouts see largest weekly decline yet — but there are more red flags

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Signage stands outside the Freddie Mac headquarters in McLean, Virginia, U.S., on Monday, May 11, 2020.

Andrew Harrer | Bloomberg | Getty Images

The number of borrowers in government and private sector coronavirus-related mortgage bailouts just fell by the largest weekly volume since these plans were put in place.

There are, however, warning signs that the programs could swell again.

As of June 30, 4.58 million homeowners were in forbearance plans, according to Black Knight, a mortgage data and technology firm. This represents 8.6% of all active mortgages, down from 8.8% the previous week. Added up, all the loans in forbearance represent just under $1 trillion in unpaid principal ($995 billion).  

After rising the previous week, the number of loans in active forbearance plans dropped by 104,000. That is the largest one-week drop since the start of the programs and brings the total volume to the lowest since the first week of May. The current volume is down by 183,000 from the peak on May 22.

“A return to declining forbearance volumes this week was not entirely unexpected. Last week’s forbearance volumes may have been adversely affected by late fees charged on the 15th of the month, which tend to put upward pressure on the number of homeowners entering into plans in the following days,” said Andy Walden, Black Knight economist and director of market research.

Volume also likely fell in part because more than half of all active forbearance plans, many of which were set up with initial 90-day periods, began in late March and early April. They would therefore be scheduled to expire or be reviewed for extension in June.

About 2.2 million loans would fall into that category, so the drop therefore suggests that some of those borrowers did not need an extension, but many more of them did. 

“There is still great uncertainty ahead, given the recent spike in COVID around the country and the scheduled end of expanded unemployment benefits on July 31,” added Walden.

According to daily mortgage payment tracking data, as of the end of June, roughly a quarter of homeowners in forbearance had actually made their June payment anyway. That’s as compared to 46% in April and approximately 30% in May.

The bulk of the loans in forbearance are government backed and part of the mortgage bailout program in the CARES Act, which President Donald Trump signed into law in March. It allows borrowers to miss monthly payments for at least three months and potentially up to a year. Those payments can be remitted either in repayment plans, loan modifications, or when the home is sold or the mortgage refinanced. For loans not backed by the government, most banks and private lenders have set up similar plans. 

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