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High-Priced Loans More Likely to Be in Forbearance, Study Says
Dated: January 5 2021
As of Dec. 1, about 2.8 million homeowners are in a forbearance plan due to the COVID-19 pandemic. Homeowners who are struggling to make mortgage payments can request from their lender a pause or reduction in their mortgage payments for up to a year.
Forbearance rates are trending highest among higher-priced loans, which are considered loans with a rate spread of 1.5 percentage points or more, according to CoreLogic, a real estate data firm. On the other hand, forbearance rates are lowest for loans with a rate spread of 0–0.25%.
Forbearance is strongly tied to delinquency if a borrower’s financial situation does not improve by the end of their term.
“Higher-priced loans were more likely to experience forbearance than lower-rate spread loans,” according to CoreLogic’s analysis. Once their forbearance period is up, “there is a risk of an increase in mortgage foreclosure, especially among borrowers who remain in financial hardship and have little or no home equity.”
Still, there is hope. Not all forbearance loans are in delinquency, the researchers note. About 30% of homeowners with conventional loans in forbearance plans in October were still current on their mortgage payments. As such, some homeowners may be using forbearance as a fallback plan in case their finances worsen but haven’t needed it yet.
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As of Dec. 1, about 2.8 million homeowners are in a forbearance plan due to the COVID-19 pandemic. Homeowners who are struggling to make mortgage payments can request from their lender a pause or