Homeowners exiting mortgage forbearance at fastest pace in the past year, data shows

Forbearance plans are decreasing at their fastest pace since last year, but foreclosures files are up.  (iStock)

The number of mortgages in active forbearance plans plummeted at the beginning of October, marking the largest weekly decline in the last 12 months, according to new data from Black Knight

This comes as a large number of forbearance plans were either marked for review or set for final expiration in September. The number of active forbearance plans dropped by 177,000 during the first week of October, Black Knight’s weekly forbearance report showed. This was led by a drop of 84,000 in FHA and VA loans, 50,000 among GSE loans — or loans backed by Fannie Mae and Freddie Mac — and 43,000 in privately backed loans. 

If your forbearance plan ended but you're struggling to resume your mortgage payment, a mortgage refinance could be right for you. By reducing your interest rate, you could save hundreds on your monthly payment. Visit Credible to find your personalized rate and see how much you could save.

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Many homeowners remain in forbearance, foreclosures also on the rise

While the number of forbearances is dropping, 1.39 million homeowners, or 2.6% of all active mortgage holders, remain in mortgage forbearance, Black Knight’s data showed. But 180,000 of these forbearances had end review dates in September, and could soon exit in the coming weeks. Another 420,000 plans are also scheduled to be reviewed for extension or expire in October.

But data shows that foreclosure activity is also increasing after the end of the latest foreclosure moratorium. Therefore, some plans could be exiting forbearance because their period has expired, rather than being financially ready to resume payments. 

Foreclosure filings increased 24% from August to September, and 102% annually in September, according to the latest foreclosure report from ATTOM data solutions.

"So far the government and the mortgage industry have worked together to do an extraordinary job of preventing millions of unnecessary foreclosures using the foreclosure moratorium and mortgage forbearance program," Rick Sharga, executive vice president at RealtyTrac, an ATTOM company, said. "But there are hundreds of thousands of borrowers scheduled to exit forbearance in the next two months, and it’s possible that we might see a higher percentage of those borrowers default on their loans."

If your forbearance period is over but paying your mortgage is still difficult, you could consider taking out a mortgage refinance to lower your monthly payments. Check out Credible to compare multiple lenders at once and choose the one with the best rate for you. Some programs may even allow homeowners to refinance if they missed payments due to the coronavirus pandemic.

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Foreclosure rates lower than pre-pandemic

Although data shows that foreclosure rates are rising significantly, they remain well below pre-pandemic levels and are likely to stay there through the end of the year. 

"Despite the increased level of foreclosure activity in September, we’re still far below historically normal numbers," Sharga said. "September foreclosure actions were almost 70% lower than they were prior to the COVID-19 pandemic in September of 2019, and Q3 foreclosure activity was 60% lower than the same quarter that year. 

"Even with similar increases in foreclosures over the next few months, we’ll end the year significantly below what we’d see in a normal housing market," he said. 

If you're struggling to make payments after the end of your forbearance, there are several options available to avoid mortgage foreclosure. Homeowners can speak to their mortgage servicers to determine what repayment options they have, such as a loan modification. There are also several mortgage relief options available, such as payment deferral, a lump sum payment or even adding their missed payments to the end of the loan. 

Homeowners can also consider a mortgage refinance to lower their regular monthly payments. If you're interested in this option, contact Credible to speak to a home loan expert and get your mortgage questions answered.

Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.

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