According to the Mortgage Bankers Association’s (MBA) Monthly Loan Survey, mortgages in forbearance dropped from just above 1 million in October to 835,000 as of November 30.
The percentage of all loans in forbearance dropped to 1.67%, down from 2.06% in October.
A mortgage is in forbearance when the lender allows the borrower to temporarily pause loan payments entirely or pay the mortgage at a lower amount for a period of time. After the momentary reduction or pause in payments, the borrower must pay back the money initially owed.
The fact that mortgages in forbearance are declining in overall numbers and as a percent of all mortgages signals that borrowers are in a comparatively strong position compared to previous months.
While loans in forbearance noticeably declined, the downward trend was more substantial in previous months. According to Marina Walsh, vice president of industry analysis at the Mortgage Bankers Association, “the share of loans in forbearance declined — albeit at a slower pace than October — as borrowers continued to near the expiration of their forbearance plans and moved into permanent loan workout solutions.”
She also explains that overall improvements in the U.S. economy are a significant factor in the decline of loans in forbearance.
According to Walsh, “more borrowers were current on their mortgage payments in November compared to October. This coincides with continued improvement in the labor market – faster wage growth and the unemployment rate dropping to 4.2 percent.” Walsh further explains that “while there was some deterioration in the performance of borrowers in post-forbearance workouts, four out of five overall remained current through November.”
Could Omicron Reverse This Trend?
The Wall Street Journal reported on some signs that the U.S. economy is cooling down, which may affect the ability of more borrowers to pay their monthly mortgage balance. For example, as of December 22, restaurant reservations are down 15% compared to the same time in 2019, and hotel occupancy is down slightly from the previous week. Consumer spending increased 0.6% last month, down from a 1.4% increase in October.
Many economists predict that Omicron will slow the economy in January and February. According to Jefferies LLC chief economist Aneta Markowska, “We are still on track for very strong fourth-quarter consumption, but I am now seeing that that momentum continues to fade.”
Additionally, the economic forecasting firm Oxford Economics lowered their growth expectations for the U.S. economy from 3.4% to 2.5%. Economists at Nomura also lowered GDP forecasts for the first quarter of 2022, expecting consumer spending to fall. But they predict more substantial growth going into next summer, contingent on America’s ability to control ts Covid spread and supply chain disruptions.
If these predictions materialize, the raw number and share of mortgages in forbearance could increase over the winter but continue to trend downward as we head into spring and summer of 2022.
