CFPB: Forbearance Programs Worked

A significant number of homeowners have transitioned out of forbearances over the last year

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The COVID-19 pandemic created a dire situation for many homeowners, and almost 8 million homeowners have taken advantage of mortgage forbearance programs over the course of the pandemic. Forbearance programs, such as those provided under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in March 2020, allowed many borrowers to take forbearances for reasons related to the COVID-19 pandemic for periods lasting up to 18 months.

A significant number of homeowners have transitioned out of those forbearances over the last year due, in part, to improving economic conditions and the expiration of protections under these programs for many loans beginning in the Fall of 2021. Given these changes, the Consumer Financial Protection Bureau said its goal is to better understand the characteristics of borrowers who remain in forbearance.

In a May 2021 Consumer Financial Protection Bureau(CFPB) report, it used data from the National Mortgage Database (NMDB®) to report on the characteristics of mortgage borrowers during the COVID-19 pandemic based on the account status of borrowers reported through March 2021. The focus of its latest report is to understand the mortgage characteristics and demographics of borrowers who remained in forbearance in January 2022.

As in the May report, its sample of borrowers comes from the NMDB, which is a random 1-in-20 sample of closed-end first-lien mortgages in the United States. The CFPB analyzed borrower demographic and loan characteristics for a sample of more than 2 million mortgage loans for owner-occupied properties.

The data include borrower-level demographics and loan-level origination and performance information. The account status in the NMDB is based off credit record data. The CFPB measured account status for open loans as reported through January 2022. Overall, its January 2022 sample of borrowers had a forbearance rate of 1.3 percent, compared to 4.7 percent in the March 2021 sample used in its May 2021 report.

The primary findings include:

• The share of mortgages in forbearance fell significantly for minority and non-minority borrowers between March 2021 and January 2022. Decreases in the rate of forbearance were relatively larger for non-white than for white borrowers with the largest decreases occurring among Hispanic and other race borrowers.

• Black and Hispanic borrowers were overrepresented among those in forbearance. Black and Hispanic borrowers accounted for a combined 31.2 percent of forbearances, while only accounting for 18. percent of the overall sample of borrowers. Furthermore, Black borrowers were 2.8times more likely and Hispanic borrowers were 1.6 times more likely to be in forbearance compared to white borrowers.

• Borrowers in forbearance as of January 2022 appear to have less financial capacity, on average, than borrowers in forbearance as of March 2021. Among mortgage borrowers who were pre-COVID delinquent, the rate of forbearance fell 46 percent between March 2021 and January 2022, whereas the rate of forbearance fell 74 percent over the same period for borrowers who were pre-COVID current.

• Finally, in the January 2022 sample there was a significantly smaller share of loans with current LTV ratios above 80 relative to the March 2021 sample of borrowers. Unlike in past recessions where house prices fell, the pandemic economy has seen significant house price appreciation that can reduce a borrower’s LTV ratio, all else equal

• Mortgage borrowers who were pre-COVID delinquent were relatively less likely to be in forbearance compared to borrowers that were pre-COVID current in January 2022.

• COVID current borrowers were 12.4 times more likely to be in forbearance than to be 60+ days delinquent. In comparison, pre-COVID delinquent borrowers were only 2.7 times as likely to be in forbearance than to be 60+ days delinquent.

• Mortgage borrowers with current (or mark-to-market) loan-to-value (LTV) ratios over 95 percent had significantly higher rates of forbearance compared to loans with lower LTV ratios in January 2022. However, this population of borrowers accounted for a small share of forbearances (1.0 percent).