Black Knight economist on the latest forbearance report

Alcynna Lloyd: Hello, HousingWire listeners. Today, I’m joined by Andy Walden, the economist and VP of Market Research at Black Knight. Thanks for joining us, Andy.

Andy Walden: Absolutely, thank you for having me.

Alcynna Lloyd: Of course. Listeners, today, Andy will be speaking to us about Black Knight’s latest weekly snapshot of daily low-level forbearance data, which was published on July 9th and indicates the number of active plans have now fallen below 2 million, for the first time since April 2020.

Before we dive in today, Andy, you’ve been on our show a few times, but can you let our listeners know more about you and what your work often entails at Black Knight?

Andy Walden: Absolutely. So I’m head of our Market Research team here at Black Knight, so I kind of get the fun job of digging through all of the different Black Knight data assets, whether it’s our McDash mortgage performance data, our home price index, some of our real-time housing market trends or Optimal Blue rate lock data, and really understanding what that underlying data is telling us about the market, what’s going on in the market, and kind of telling that story to the market.

Alcynna Lloyd: Great, so you’re perfect for today’s topic, which we’re going to be talking about forbearance data. So let’s switch gears and focus on that. Andy, can you tell us a little bit about Black Knight’s forbearance report and how you calculate the data? Additionally, how often is this report published?

Andy Walden: Absolutely. And what became very clear, kind of, early on in the pandemic, kind of, March and April 2020, was the need for some real-time reporting out there in the market. Traditionally, mortgage-reporting data has been on a monthly cadence and there’s a lit bit of a lag to really understanding what happened last month or the month prior. It became clear that housing policy was going to need to be implemented very, very rapidly. And what we did was we, kind of switched from or added to that monthly cadence of data collection. We went to a daily mortgage performance collection.

So we started collecting loan level, mortgage performance data every day. We added in some forbearance fields there as well, so this was really sitting on top of underlying loan level, service or provided, kind of, daily aggregations of mortgage performance data. In terms of the cadence of reporting, we put out our forbearance tracker every Friday. So once a week, we, kind of, provide a snapshot of not only what happened that week, inflow, outflow of our forbearance activity, but also the number of outstanding forbearances and that, kind of, broken down by investor categories as well.

Alcynna Lloyd: All right. So we’re going to dive in on some of that data that you offered. We’ll focus on data found on Black Knight’s latest report, according to the weekly snapshot, as of July 9th, the overall number of active forbearance plans dropped by 189,000. What propelled this decline?

Andy Walden: It really, kind of, goes back to the way that servicers are handling these forbearances. So we know that borrowers have up to 18 months in forbearance but what you don’t see underlying those 18 months is that servicers are really kind of doing quarterly review checks on these forbearance plans. So every three months, borrowers are checked in on and they’re reviewed for either extension of that forbearance plan or to have that borrower removed from forbearance.

And what we saw in the month of June was over 800,000 of those forbearance plan reviews taking place. So it’s really those borrowers that entered into their forbearance very early on, kind of, in that March, April 2020, they’re going through their 15th month of forbearance, and so there’s a lot of review volume taking place in June. Again, almost 800,000 plan reviews in the month as a whole, and about 325,000 in the final week of June, that’s why we saw those big drops there, kind of, around the 4th of July holiday.

Alcynna Lloyd: I see. So I want to talk a little deeper on some of the other data that you include. In the report, Black Knight claims that nearly two-thirds of the 325,000 plans reviewed for extension or removal resulted in exits, marking the highest weekly exit rate in more than six months, and the highest weekly removal volumes since the first week of plans went through, their 12-month reviews a few months ago. And while 1.86 million homeowners remain in COVID-19-related forbearance plans, as of July 6th, forbearance plans start to decline the first week for a total of fewer than 26,000, marking a new pandemic era low.

I want to unpack this. Can we attribute this decline to the nation’s economic health and job growth or are there other factors at play?

Andy Walden: I mean, absolutely, that’s a key driver behind what we’re seeing, both in forbearance plan improvement and in terms of delinquency rate improvement in the broader market. It’s just the overall improvement that we’re seeing in economic trends. I think there are couple secondary trends there.

One is, again, the large volume of reviews. The last time we saw this level of exit velocity was when those early forbearance entrants went through their 12-month review just three months ago, so this is kind of a secondary wave following that. And then thirdly, I think, we’re all kind of looking down the road at September and October, and the large volume of terminal expirations that are upcoming here over the next three months. I think servicees are trying to get in front of that a little bit and incorporate some of those reviews earlier on as well.

Alcynna Lloyd: I want to discuss policy, as we talk about people leaving forbearance. I want to discuss policy that’s about to happen. Recently, the White House said in a statement that three federal agencies that back mortgages — the United States Department of Agriculture, the Department of Veteran Affairs, and Department of Housing and Urban Development — would extend the pandemic-related foreclosure ban until July 31st. The Federal Housing Finance Agency, which oversees Fannie and Freddie, said it will similarly extend its limit through the end of July. This latest extension will be the last one, according to the Biden administration.

Andy, do you believe this will actually be the last one, and is the housing market prepared to officially exit forbearance?

Andy Walden: You know, I do. I mean, never say never when it comes to housing policy, but I’ll take them at their word that this would be the final extension of those foreclosure moratoriums. And you’ve seen the CFPB proposed rules, starting at the end of August as well, a variety of different protections that are being put in place for these borrowers as well, and servicers are being encouraged to even incorporate some of those rules a little bit earlier, kind of, when those foreclosure moratoriums expire. Broadly speaking, the market is prepared for this to be the final extension.

Alcynna Lloyd: So I want to talk deeper on this. To continue on my last question, I want to focus on a report of the Mortgage Bankers Association. Their latest forbearance survey, which study servicers forbearance portfolio, indicates that according to the MBA, of the cumulative exits that appeared from June 1st, 2020 through July 4th, 2021, 27.8% resulted in loan deferrals or partial claims. Another 23.5% represented borrowers who make their monthly payments during the forbearance period. However, roughly 15.5% represented borrowers who did not make all their monthly payments and exited forbearance without a loss mitigation plan in place. The MBA indicates that about 11% resulted in a loan modification or trial loan modification.

So my question for you is, as we continue to see more and more homeowners exit forbearance, what does this mean for the overall market? I mean, are all these homeowners financially prepared to resume paying their mortgages?

Andy Walden: That’s a good question. I think if we look holistically at the volume of homeowners that have been in forbearance, we’re looking at about 7.25 million homeowners that have been in forbearance at some point over the last 15 months. We’re talking 14% of all mortgage holders have been in forbearance. Performance of people that have exited forbearance plans so far has been pretty strong. We’ve seen almost three-quarters of all homeowners that have been in forbearance that have exited, about two-thirds of all homeowners that have been in forbearance have not only exited but are either reperforming or have paid off their mortgage in full. They’re seeing pretty strong performance so far.

Now, I think it’s fair to assume that folks that need the full 18 months of forbearance may perform a little bit differently than folks that exited early on their own accord. But there are some additional protections in place. So we have this post-forbearance waterfall of assistance to help homeowners get back on track. With the deferment, can they return to make mortgage payments? Do they need a mod?

Even beyond that, I think there’re a couple additional assistance programs to help homeowners. One is Homeowners Assistance Fund, there’s $10 billion out there to help homeowners at the state level. And then even beyond that, when we start to look at equity positions, there’s a nice equity backdrop there as well. We know homeowners are sitting on more equity than they ever have as well. And even folks that are in those forbearance plans are in very strong equity positions.

Broadly speaking, I think there’s a lot of optimism about homeowners’ ability to go back and return to make mortgage payments. I think those additional assistance programs and equity backstops are gonna help as well.

Alcynna Lloyd: So the programs that you’re mentioning, they have the potential to be very helpful and what many are hoping to avoid is another foreclosure crisis or a bunch of people not being able to pay their mortgages. And this leads me to my last question. As we go forward, is there anything else you think our listeners need to know about the homebuying market, forbearances, or Black Knight’s data relating to forbearances?

Andy Walden: I think the key timeframe, a lot of questions are out there in the market about potential foreclosure risk or default risk as we exit these forbearance plans. I think the key time in the market is going to be that September or October timeframe. All in, if you look at the 1.9 million forbearance plans out there, about half of them are set to expire at the end of this year, and more acutely, over 500,000 are set to expire in September and October alone. So those are really the key timeframes that a lot of folks in the mortgage and housing markets are really going to be dialed in on that data, analyzing how those borrowers are performing coming out those plans, is there additional assistance needed, and so on.

So I think people are going to be very acutely focused on the data at those points in time and obviously, we are as well. So keep an eye on those forbearance tracker blog posts and additional mortgage monitoring posts around that time to really, kind of, get a feel in almost real-time of how we’re progressing through those key periods.

Alcynna Lloyd: Well, we’ll have to have you back on around that time to see how well the market fares and to see some of your data and what you project for the future as well.

Andy Walden: Absolutely.

Alcynna Lloyd: All right. So I want to say thank you so much for joining us today.

Andy Walden: All right. Thank you for having me. Appreciate it.

Alcynna Lloyd: Of course. Listeners, join us back here tomorrow for more HousingWire Daily. Thank you.