Freddie Mac: Forbearance did more than help at-risk owners. It also stopped a foreclosure surge from hurting the market and helped all homeowners retain their value.
WASHINGTON – According to Freddie Mac’s latest Insight, without forbearance, many households may have defaulted or been forced to sell their homes during the COVID-19 pandemic. These forced sales could have depressed the housing market, leading to further defaults.
Mortgage forbearance temporarily removes the obligation for borrowers to make their monthly mortgage payment. Forbearance plans are typically used by borrowers who experienced a sudden loss of employment, a reduction in income or damage from a natural disaster.
Mortgage forbearance provides liquidity to households and plays a vital role in mitigating the damage to homeowners during times of crisis, whether it be a hurricane, wildfire or health epidemic, said Sam Khater, Freddie Mac’s chief economist. Research on this topic is important because it will help us prepare for the next several months as we continue to navigate the COVID-19 pandemic and beyond.
Report Highlights
- Forbearance rates in the COVID-19 period (March 2020 to June 2020) are similar in level to those experienced in those areas impacted by the major storms in 2017 (August 2017 to December 2017) but much higher than the baseline period (January 2019 to February 2020). The forbearance rate is 5.6% during the COVID-19 period and 5.8% during the 2017 storms period. In contrast, in the baseline period, the forbearance rate is only 0.09%, even though the baseline spans a longer time horizon.
- While loans with high loan-to-value (LTV) ratios are more likely to be in forbearance, almost all loans in forbearance have positive equity.
- Forbearance rates decline for borrowers with higher FICO scores.
- In the COVID-19 period, the rate increases by a factor of about 5.6 going from loans with FICO scores in the highest category (800+) to the lowest category
Copyright © 2020 Global Data Point; provided by SyndiGate Media Inc. (Syndigate.info). All rights reserved.
