The rates of mortgages in forbearance surged April 1 to 2.66 percent from 0.25 percent at the start of March, according to Bloomberg. It comes as Moody’s Analytics’ chief economist expects that up to 30 percent of homeowners may stop making mortgage payments.
The federal government has instructed lenders handling mortgages backed by the government to give borrowers up to six months grace periods, and loan servicers have been inundated with calls from borrowers. Some states are taking similar measures.
In New York, Gov. Andrew Cuomo signed an executive order that required state-regulated banks to communicate to borrowers how to receive 90 days of forbearance on mortgage payments. He also specified that requests should be processed within 10 days.
But loan servicers are still on the hook to pay bondholders, which is leading to a liquidity crunch for independent mortgage companies that can’t count on the government to backstop losses like banks can.
Fitch Ratings warned that nonbank lenders could be especially vulnerable if forbearance becomes prevalent and put seven nonbank lenders on negative-rating watch at the end of March.
According to the Mortgage Bankers Association, 3.45 percent of loans held by nonbank lenders have gone into forbearance. According to the Wall Street Journal, about 60 percent of U.S. home mortgages are originated by nonbank lenders. [Bloomberg] — Erin Hudson