Mortgage Market Can Withstand Forbearance Programs
Fitch Ratings latest report shows the country's mortgage market is well positioned to withstand forbearance programs now, but that a second wave of COVID-19 could bring instability.
As COVID-19 continues to cause havoc across many sectors, Fitch Ratings says the country’s mortgage market is well positioned to withstand forbearance programs.
Another wave of the coronavirus in the fall, though, could change things, it said.
Johann Juan, senior director of non-bank financial institutions for Fitch, told GlobeSt.com that “the takeaway is that borrowers are less likely to walk away from their homes because they have more skin in the game. Statistics show that less than 10% of borrowers are under water on their mortgages.”
And, forbearance programs—like the federal CARES Act, or the Coronavirus Aid Relief and Economic Security Act—are allowing mortgage borrowers to spend their money elsewhere. Many are doing so wisely, said Michael Shepherd, director of banks for Fitch.
“Not paying their mortgage payments gives people liquidity to do other things like pay their bills and their credit cards,” Shepherd told GlobeSt.com. “So far, the performance of credit cards and auto loans have been pretty good.”
According to the Fitch report, “Forbearance programs allowing borrowers to temporarily suspend monthly mortgage payments are not expected to be a long-term credit negative for the mortgage industry.”
Brian Knudsen, associate director of non-bank financial institutions for Fitch, said that “In terms of forbearance we have seen the number of loans from programs taper off a bit. But, because of COVID, there are still many customers out there seeking relief on mortgage payments”
A second wave of COVID in the fall or later, experts said, could cause issues for borrowers.
“A second wave would, potentially put more stress on borrowers who may not then be able to pay their mortgages,” Juan said. “Therefore, it will all depend on what the government offers to help those in need.”
Juan continued: “A second wave could place a strain on mortgage service liquidity down the road and that is certainly something we would be looking at.’
The Fitch report quoted data several times from Black Knight, Inc., which provides data and analysis to the real estate industries.
The latest statistics available from Black Knight, according to Fitch, is from July 14. On that date, the report said. “the number of mortgage loans in active forbearance had fallen for three consecutive weeks to 4.1 million, or 7.8% of all active mortgages and approximately $900 billion in unpaid principal balances.”
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