But there’s concern about what could happen later this year.
For one, even though the forbearance rate has flattened, more borrowers in forbearance programs are starting to miss their payments. In April, 46% of borrowers in forbearance still paid their mortgage. By the end of May, that had fallen to 28%, and by June 15, just 15% of borrowers had made their payment for this month, according to Black Knight.
Even if borrowers manage to survive the initial shock of enhanced unemployment benefits ending, there could be renewed stress next year.
Unlike a decade ago, when about one in four borrowers owed more on their homes than they were worth, now nearly 97% have equity in their homes, according to CoreLogic. So if they can’t make their mortgage payments, they’re more likely to try to sell their homes than default. If many borrowers try to do that at once when their forbearance ends next year, that could lead to a crush of homes for sale and declining prices, Mr. Cooper’s Johnson said.
Dennis Lee, who analyzes mortgages at Barclays, reckons that 15% to 25% of borrowers in forbearance eventually will default, an estimate he arrived at after studying past episodes of financial distress.
Defaults Quadruple
CoreLogic estimates defaults in some mortgages would quadruple by 2022 under its baseline economic scenario, in which unemployment peaks this year at just more than 15%.
Robert Perry, who oversees investment strategy at financial advisory firm ALM First Group LLC, doesn’t think losses will approach the levels of the last financial crisis. Over the past decade, lenders have given mortgages largely to borrowers with sterling credit who could afford hefty down payments, and rising home prices over the last several years has meant record levels of home equity.
About 80% of borrowers postponing their payments have at least 20% equity in their homes, according to Black Knight, giving creditors some comfort that a surge of defaults may not wreck their bottom lines.
Those homeowners who owe about as much as their properties are worth are “the corner of the box everyone has a circle around,” Perry said.
This article was provided by Bloomberg News.