NY Fed: Most Borrowers Who Took Forbearances Amid The Pandemic Have Exited Forbearance

NY Fed: Most Borrowers Who Took Forbearances Amid The Pandemic Have Exited Forbearance

May 20, 2021 at 05:00PM

More than one in 10 mortgage borrowers participated in a mortgage forbearance during the past year for at least a month, but many of them left forbearance by March 2021, officials from the Federal Reserve Bank of New York said in a Wednesday (May 19) blog post.

Thirteen percent of all mortgage borrowers were in forbearance for a minimum of one month over the last year, and 35 percent of them remained in forbearance in March 2021, officials said in the post.

While the average participant was in forbearance for five months, a third of participants were in forbearance for just one to two months and only 12 percent of borrowers spent the most time they could in forbearance — 11 to 12 months.

Borrowers who resided in the lowest income regions were more probable to have entered into forbearance at some point, with almost 16 percent of them ever having gone into forbearance. But only 11 percent of mortgagors in the regions with the most income took part in a forbearance.

A number of borrowers have left forbearance through the sale of their property, and they had the advantage of home equity being at a record high in “nominal terms,” according to the officials, who cited the Financial Accounts of the United States.

“This escape route was not available to troubled borrowers during the Great Recession, when a collapse in home prices left a foreclosure or a short sale as the only potential exits from an underwater mortgage,” the officials said.

Most mortgage borrowers who participated in forbearances have experienced rises in their credit scores as of March of last year, while those who did not take a forbearance during the pandemic also saw their credit scores increase as having a longer payment history helps strengthen a borrower’s creditworthiness. However, officials noted that the credit score increase is higher among those who participated in forbearances.

“This is because although they were not making payments, their credit reports are treated as if they’re making continued payments for credit scoring purposes and account histories,” the officials said.

The news comes as the Consumer Financial Protection Bureau (CFPB) proposed multiple rule changes meant to assist in stopping avoidable foreclosures from happening as emergency federal foreclosure safeguards elapse.