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11 in the mortgage market or anything like that. e good news is that, of those borrowers that are seriously delinquent and not in forbearance or that are out of forbearance but are seriously delinquent, we estimate that about three quarters of those have substantial equity in the property. By substantial equity we mean 20% or more equity in their homes. So that obviously is a huge difference to what it was during the Great Recession when most of the borrowers were underwater. ere are two cautionary parts to this. One is that, of the about half a million borrowers that are in some stage of loss mitigation, close to three quarters of them are still not yet paying their mortgages. ey're in a transitional state. e other cautionary part of it is that this subset does tend to be dominated by minority and lower-income borrowers. We were able to take these mortgages and merge them with the Home Mortgage Disclosure Act data, which has the race and income of the borrowers at loan application. What we're showing is that close to 8% of the Black borrowers are either in forbearance or out of forbearance and still delinquent. So, that's a pretty high number. And about 5.5% of the Hispanic borrowers are, compared with about 3.5% for the whites and about 2.5% for the Asian Americans. Were there any surprises regarding the pace you've seen of people coming out of forbearance or has that played out as predicted? An: inking about the big picture, there were two surprises for this whole thing at the beginning of the pandemic. ere was a big worry that the mortgage market and the housing market were going to have major difficulties. But the housing market has remained very strong. We see a lot of house price appreciation, and you could call that a surprise. Another one is how many borrowers were able to get temporary relief through forbearance and then get back on track by reperforming or getting worked out. Is this equity spread distributed equally across, for example, minority cohorts or geographic regions? Cordell: at's a great question. We didn't necessarily find it distributed inequitably along racial dimensions, but clearly the equity position is going to be worse for the FHA/ VA borrowers, because they just start with less equity to begin with. en also, for some of the lower-income borrowers, we are seeing that there's less equity in their homes, which is also tied to the fact that they might have FHA/VA mortgages. What do you anticipate for foreclosure rates going forward? Cordell: One thing that surprised us early on is, even though the foreclosure moratoria ended in July, foreclosure starts didn't really pick up. Now, that was partly due to the CFPB adding additional protections for borrowers. But they stayed very low through January. In the month of February, the numbers picked up. Now, the number of foreclosure referrals have picked up to the pre-pandemic levels. So, we are estimating that about 56,000 mortgages were referred to foreclosure in between January and February 7. So, through the month of December, which is before these protections ran out, we were running about 7,000 to 8,000 foreclosure referrals a month, which is way below the standard rate pre-pandemic, which was around 50,000. In the month of January, we saw about 56,000 foreclosure referrals. Obviously, there was a backlog of foreclosures because, for almost two years, foreclosure referrals were way down. So, we are going to see a pickup, but we're not going to see a pickup anywhere close to what it was in 2007-2009. If they go back to pre-pandemic levels, we're going to have a run rate of about 50,000 a month, and that's roughly where we are right now. ere's a backlog, so it's hard to predict exactly what's going to happen, but over time, as this thing finally stabilizes, we're going to get back to a normal process of referral. Can you tell from the data what percentage of these starts are cases that were due for foreclosure pre-pandemic, as opposed to borrowers suffering economic fallout from the past two years? Cordell: at's another great question. I don't have the exact figures, but I'll make one observation that was a bit surprising to us. For "We're likely to get back to pre-pandemic foreclosure levels, maybe a little bit higher given some of the backlog, but it won't be like the Great Recession years." —Xudong An, AVP, Supervision, Regulation, and Credit, Federal Reserve Bank of Philadelphia

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