Borrowers withdrew $63 billion in equity in the second quarter of 2021, according to the latest numbers from Black Knight, the most in a single quarter in nearly 15 years.
There is still $9 trillion in tappable equity, a 37% increase year-over-year. The driver is, of course, spiking home prices in most places. Home values have risen so dramatically that the average homeowner could refinance their mortgage and withdraw $173,000, while retaining 20% equity in their home. The amount of such tappable equity increased $20,000 for the average homeowner from the prior quarter.
Ben Graboske, Black Knight’s data and analytics president, said homeowners’ equity will serve as a buffer for homeowners exiting forbearance. Of homeowners still in forbearance as of mid-August, 98% have at least 10% equity. During the last downturn, in contrast, 28% of mortgage holders were fully underwater.
“Such strong equity positions should help limit the volume of distressed inflow into the real estate market as well as provide strong incentive for homeowners to return to making mortgage payments — even if needing to be reduced through modification,” Graboske said.
Mortgage originations were down 5% from the first quarter, but it was the fourth consecutive quarter to log more than $1 trillion in total lending. For this quarter, and each of the four prior quarters, more than 2.2 million people elected to take advantage of rising home values and low rates and refinance their homes.
How can servicers best help borrowers as they exit forbearance?
Servicers should be communicating with borrowers early, ensuring to do so in a compliant manner by staying abreast of the current and proposed regulations, CFPB or otherwise. Alert them that they do have the option to sell their house now while in forbearance if they wish as a forbearance exit option.
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The national delinquency rate fell 5% to 4.14% in July. Still, 1.45 million borrowers are 90 or more days past-due.
Forbearance trended downward as well, with just 1.75 million or 3.3% of mortgage-holders in forbearance as of the middle of August, compared with 5.9% the month prior. Federal Housing Administration and Veterans’ Affairs loans make up 40% of all forbearance plans.
While 5.8% or 696,000 FHA/VA mortgages are in active forbearance plans, the share of forborne loans held by the government sponsored enterprises is substantially lower. Just 1.9% of GSE-backed loans are in forbearance.
In the coming months, servicers will guide a staggering number of borrowers through the expiration of their forbearance plans and into loan modifications, in order to help borrowers reduce payments and avert foreclosure. Just in September, 700,000 loans are scheduled for review, and 415,000 will reach the end of their forbearance period.
The Consumer Financial Protection Bureau has increased its scrutiny of mortgage servicers, just as they are flooded with calls from borrowers. The watchdog agency also introduced new procedural safeguards for servicers to follow.
More than half of borrowers who exited their forbearance plans in April and May 2020 repaid their mortgages in full, likely because of low rates incentivizing them to refinance. But more borrowers who are now leaving forbearance are staying in loss mitigation programs.
More recent borrowers entering payment plans could indicate that they may have been more severely affected by the economic effects of the pandemic.
