At first, some mortgage bailout recipients didn’t need it, but now more do

As of this week, 4.75 million homeowners are in government or private sector mortgage forbearance programs, according to Black Knight. That is equivalent to 9% of all mortgages outstanding. New analysis, however, shows a large share of these borrowers initially didn’t need the bailout, but now more do. 

These forbearance programs, most of which are on government-backed loans, allow borrowers to miss monthly payments for at least three months. Those payments must be made up in the future through various options. 

While the number of new borrowers entering the plan has slowed dramatically since the start of the programs in early April, Black Knight found a surprising twist in the data: Of the 4.25 million homeowners who were in forbearance at the end of April, nearly half of them actually made their monthly mortgage payment anyway, while 54% did not.

Things changed significantly, however, in May. As of May 19, just 21% of those in forbearance plans had made their May payments. This means that about 1.4 million homeowners who were in forbearance but made their April payments are now at risk of becoming delinquent on their loans in May. This explains why the national delinquency rate, which did make an unprecedented monthly jump in April was not as high as expected.

“The fact that only 54% of borrowers in forbearance actually missed their payments helps explain the disparity between April’s delinquency and forbearance rates,” said Anthony Jabbour, CEO of Black Knight. “However, just 21% of borrowers in forbearance have made their May payments, which could lead to another sharp increase in the national delinquency rate for May if those payments are not received before the end of the month.”

It may have been that some borrowers were using the forbearance program as a safety net, just in case they were to lose their jobs. Some made partial mortgage payments, so as not to run up their debt.  

This new data jibes with a recent survey by Lending Tree that found just 5% of those approved for mortgage forbearance said they wouldn’t have been able to pay their mortgage without it. About 1 in 4 said they could have paid their mortgages, but would’ve needed to skip other essential bills. Nearly 70%, however, said they simply got forbearance because they, “wanted to enjoy some time off from their normal payments,” according to the report. Three out of 4 said they felt at least somewhat guilty about that.

When the government’s program was announced, through the CARES Act, the federal coronavirus relief package, there was an outcry in the industry because the guidelines specifically stated that borrowers did not need to prove any financial hardship. No paperwork was necessary. They simply had to tell their servicers that they needed help.

In an interview April 1, as the bailout was being rolled out, Mark Calabria, director of the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, actually pleaded to consumers not to game the system.

“We’re operating on the honor system. We are asking and we’re putting together a script for servicers. This is supposed to be limited to if you’ve lost your job, you’ve lost income,” said Calabria. “Please, if you haven’t lost your job, continue paying. If you can pay your mortgage please do so because we really need to focus on the people who can’t.”

Calabria underestimated the number of borrowers who would ask for forbearance, saying he expected it to rise to 2 million by the end of May. It is now more than twice that and rising.

The 4.75 million mortgages in forbearance plans, represent just more than $1 trillion in unpaid principal balances. An estimated 7.1% of all GSE-backed loans and 12.6% of FHA/VA mortgages are now in forbearance. While the number of borrowers in active forbearance increased by just 93,000 in the past week, far higher than the 325,000 rise in the first week of May, volume has started to tick up again slightly.