DS News

72 moving from forbearance into deferrals, and 18% being considered for modifications. If trends continue, by next spring, servicers need to be ready to process millions of deferrals, modifications, and defaults. is is what is "known." What's unknown is, what shape will borrowers be in a year from now? As the Fed recently noted: "e strain on household and business balance sheets from the economic and financial shocks since March will create persistent fragilities." In mid-June, a NAR survey found that 52% of all homeowners were still worried about making their mortgage payments and 47% were considering selling their homes to lower housing costs. DOING THE RIGHT THING Since the pandemic began, legislators, regulators, government agencies, investors, and servicers have all been working to provide the best possible outcome for the consumer. From a mortgage perspective, the centerpiece of this effort was the CARES Act. It provides: • A moratorium on foreclosures for federally- backed mortgages (now extended through 12/31/20) • e right to request a forbearance for up to 180 days and then one extension for another 180 days with no need to document a pandemic-related financial hardship • No fees, penalties, or additional interest • No impact on credit scores for loans in forbearance e GSEs, FHA, and VA have provided additional guidance on how borrowers can defer payments at the end of forbearance and how quickly they can refinance. ese agencies have also limited a servicer's obligation to advance during forbearance to four months' payments. So far, most private investors have followed suit and allowed servicers to offer at least short-term forbearance. In addition to direct mortgage relief, swift action on stimulus checks, unemployment benefits and programs like the Paycheck Protection Program have also cushioned the economic blow for consumers and enabled many to stay current with their obligations. States and local governments have also taken steps to protect borrowers. By our count, more than 60 bills and executive orders have been promulgated to date, affecting mortgages, credit, foreclosure, and evictions. Efforts haven't always aligned perfectly, and at times, servicers were scrambling to respond real-time to evolving rules governing forbearance. However, all parties have consistently tried to do the right thing for the consumer. WHERE WE ARE NOW e good news is that at the outset of the pandemic, consumers were in much better shape financially than 12 years ago. Credit scores and credit capacity were solid through the end of February, serious defaults at 20-year lows, unemployment at historical record lows, home equity at all-time highs, and home prices were stable and rising. Perhaps this also explains why, at least for the moment, even borrowers seem to be coping. Black Knight has reported that in the first full month of the CARES program, 46% of borrowers still made at least a partial mortgage payment, though that number declined in June to just 15%. Certainly, many, even most, of the early forbearance-takers were anxious about their future, having been furloughed or having lost income as a result of the nationwide shelter- in-place orders. But others saw forbearance as a "strategic" opportunity to lower costs and save payments, or as insurance—just in case. A recent LendingTree study found 70% of forbearance-takers said they could have made their mortgage payments but wanted to take a break. Only 5% said they wouldn't have been able to make their payments. MODELING DEMAND By now, every servicer has made preliminary assumptions what percentage of forbearance-takers will qualify for the "lightest" treatment: deferral. Much of the modeling at this stage has been based on the volume of forbearances in their portfolio, their duration, and the investor mix of loans they're servicing. In mid-June, as much of the country had re-opened, assumptions were fairly optimistic, predicting the vast majority of forbearance customers would be able to re-perform, Anecdotally, we've heard estimates of 90% re- performance at some large servicing shops, but less optimistic projections from servicers with a preponderance of FHA/VA, private investor, and/or older subprime loans. Servicers have already made significant How do you prepare for an event that's inevitably coming when you don't have real visibility into its magnitude? From our perspective, the answer: be proactive and empathetic evaluating major decisions. Feature By: Joe Chappell

• Cover