After the grace periods have expired, Corelogic will review options for borrowers to exit
The number of forbearance loans experienced the largest weekly decline since early January As service technicians, they checked the hundreds of thousands that are due to expire at the end of March. Black Knight’s weekly report on COVID-19-related programs saw a 16,000 decrease in plans for the week ended March 16. Earlier this month there were 1.2 million homeowners whose plans were due to expire in late March. 620,000 of these expiration times remain.
At the end of the period, 2.59 million loans were in active plans, 4.9 percent of mortgages in servicer portfolios. Black Knight said it was For the first time since April 2020, there were fewer than 2.6mm forborne loans.
A 13,000 decrease in Fannie Mae and Freddie Mac loans and an 8,000 decrease in FHA and VA portfolios was offset by an increase in loans to bank portfolios and private label security investors of 5,000.
The company says the remaining 620,000 loans due to expire by the end of the month will be “very telling” of what to expect in terms of renewal and relocation activities in the coming months. The maximum duration of the grace period was recently increased from 12 to 18 months.
Forbearance borrowers usually do so with at least some provision for overdue principal, interest, and possibly taxes and insurance premiums brought forward by their service providers during this period. The lenders have set several options for repaying these amounts, one of which is a loan modification. CoreLogic introduced an introduction to this alternative by two executives at the company, Sapan Bafna, Senior Leader, Advanced Delivery Engines, and Jay Okulanis, Senior Professional, Client Delivery.
They state that a change is a permanent restructuring of the loan in order to obtain a cheaper payment. If the borrower cannot afford the pre-forbearance mortgage payment but can make an amended payment, this option can help avoid foreclosure.
Servicers have the option of modifying a loan with one or more of the following components, lowering the interest rate, extending the term of the loan, and avoiding part of the principal that would then be payable with the loan in full, with or without interest is paid out, the house refinanced or sold. Forgiveness of any part of the capital is not allowed under most of the lender’s guidelines.
Modification is beneficial for borrowers because they can stay at home, and for lenders and servicers because foreclosing a property is very costly. Once changed, credit or finances are not negatively affected.
The authors say refinancing is usually a better option than a modification to reduce monthly payments, and the borrower should try this option first. If a borrower is already in default, refinancing may not be possible.
To obtain a change, a borrower should contact their servicer and state that they are having problems paying their mortgage. (In the current forbearance program, servicers proactively approach borrowers when their plan term is about to expire.) The borrower fills out an affidavit and documents income and assets. Documentation and modification guidelines vary by lender, but typically include information about income and expenses, bank statements, expenses, and hardship records.
An insurer will review the documentation and review the lender eligibility rules. Once eligibility is established, the borrower will be offered a waterfall of harm reduction programs. The term “waterfall” means that the servicer navigates the lender’s programming hierarchy to determine the option that will work for the borrower. The borrower must then: a three to four months of testing time to prove that they can work within the scope of the change. If the test passes, a permanent loan change will be signed and recorded. There is usually no charge for the change, but default interest and fees can be added to the balance.