After improving in July, the number of lenders struggling to make their monthly mortgage payments is essentially flat and now threatens to move higher.
As of August 25, there were 3.9 million homeowners in mortgage ratio programs, according to Black Knight, a mortgage and analytics company. This represents 7.4% of all active mortgages and has not changed from the week before. The numbers have not improved in the past two weeks.
More concerning is that nearly three-quarters of those in tolerance have their terms extended from the first period of three months. This suggests that their financial situations are not improving, and they are still unable to make their monthly payments. Another survey by the Association of Mortgage Bankers also showed that the pace of improvement slowed sharply.
“The extremely high rate of initial applications for unemployment insurance and the high level of unemployment remain a concern, and are indicative of the challenges many households face,” said Mike Fratantoni, chief economist at MBA. “While new demands for tolerance remain low, particularly for Fannie Mae and Freddie Mac loans, the rate of exit tolerances for two straight weeks has slowed.”
Lenders in the bailout of the government are not required to pay off payments immediately after they have disappeared; instead, those payments can be made when the loan is refinanced or the house is sold.
The rescue of the mortgage, under the CARES law, allows lenders to defer monthly payments up to one year on loans backed by the government. Banks and private label securities have for the most part offered about six months of tolerance, but it is unclear how much longer they will extend that.
Breaking up by loan type, a reduction of 23,000 lenders in Fannie Mae and Freddie Mac treaties was almost completely offset by a 10,000 loan increase in FHA treaties and a 12,000 increase under loans in banks and private labels.
Over the past 30 days, active treaties have declined by 171,000 with the strongest improvement of Fannie Mae and Freddie Mac loans. More modest improvements have been seen under both FHA / VA treaties and bank and portfolio loans.
The big concern is that extended unemployment benefits have now expired, and some lenders used them to make their monthly payments. Without additional assistance, experts say the mortgage redemption number could start moving higher again.
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