Americans Not Making Their Mortgage Payments Soar By 1064% In One Month

Wednesday, April 8, 2020
By Paul Martin

by Tyler Durden
Wed, 04/08/2020

Earlier today we reported that the “The Liquidity Crisis Is Quickly Becoming A Solvency Crisis”, and nowhere is this more true than for US homeowners (their servicers, and their lenders).

According to the latest Mortgage Bankers Association Forbearance and Call Volume Survey which highlights the “unprecedented, widespread mortgage forbearance already requested by borrowers affected by the spread of the coronavirus”, the total number of loans in forbearance grew to 2.66% as of April 1; just one month ago, on March 2, the rate was 0.25%, or a 1,064% increase in just one month.

For loans backed by Ginnie Mae, which serves low- and moderate-income borrowers, the surge was much greater, with total loans in forbearance soaring to 4.25% from 0.19% one month ago.

Overall, the MBA reports that total forbearance requests grew by 1,270% between the week of March 2 and the week of March 16, and another 1,896% between the week of March 16 and the week of March 30.

According to Bloomberg, borrowers with relatively low credit scores, many of whom live paycheck to paycheck, are most likely to seek relief. Over the past two years, Ginnie Mae has guaranteed $583 billion of 30-year mortgages with FICO scores below 715, according to data compiled by Bloomberg. However, the longer the coronavirus shutdown lasts, the higher the FICO cutoff for those borrowers unable (or unwilling) to make mortgage payments.

“MBA’s survey highlights the immediate relief consumers are seeking as they navigate the economic hardships brought forth by the mitigation efforts to stop the spread of COVID-19,” said Mike Fratantoni, MBA’s Senior Vice President and Chief Economist. “The mortgage industry is committed to providing this much-needed forbearance as mandated by law under the CARES Act. It is expected that requests will continue to skyrocket at an unsustainable pace in the coming weeks, putting insurmountable cash flow constraints on many servicers – especially IMBs.”

The surge in nonpayments comes as the U.S. economy has largely shut down to stem the spread of the coronavirus. The government is requiring lenders handling payments on federally backed loans to give borrowers grace periods of as much as six months at a time with no penalties. Predictably, loan servicers have been flooded with borrowers requesting help.

As the tide of requests to stop mortgage payments come in, the MBS reported that according to mortgage servicer call centers, the wait times increased to 17.5 minutes from under two minutes three weeks prior, and the abandonment rates grew to 25% from 5%. It could get worse: as Americans lose jobs by the millions, mortgage companies say they’ll soon get overwhelmed.

Of course, the problem with a solvency crisis is that it creeps up along the financial chain and loan servicers, which are required to pay bondholders whether or not borrowers pay, are themselves facing a liquidity shortfall that could be devastating for some independent mortgage companies. The MBA said that 3.45% of loans held by nonbanks have gone into forbearance. What’s worse is that while it is easy for people to stop paying their mortgage, it will take months if not years to get all those who stopped paying to restart again.

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The Rest…HERE

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