Monday, October 19, 2020

What to do if you are in a Forbearance and it is coming due

 Last week a client told me about an acquaintance of hers who had received their 3-month forbearance letter stating they now owed their lender $8,000. They got scared and sold their home to Opendoor. They did not know they had extension options or the ability to stay in their house. There is an extreme lack of information being shared on forbearance.

On a recent webinar, I heard a representative from Freddie Mac say the servicers and Realtors need to be the ones talking about forbearance, not the lenders or GSEs (Fannie, Freddie, Ginnie). Yikes!


Disclaimer: I do not think we are going towards a foreclosure crisis, nor do I believe that the forbearance numbers will be seriously detrimental to our market.

The worst thing for the housing market is to have empty houses. We went through that 10 years ago. Forbearance is not new, but how they are structured today is. The CARES Act enabled significant changes to benefit the borrower. Forbearance is designed to keep homeowners in their homes, which keeps the housing market healthy.

One thing to note is that borrowers in forbearance are considered delinquent and they are being reported as delinquent. The delinquency is not hurting their credit score though, for now. The forbearance protections are for mortgage loans. There could be negative credit score impacts for delaying payment of credit cards or car loans. Also, at least for Freddie Mac, when a borrower leaves their forbearance plan they do have a slight hit to their credit. The extent is unknown.

For the past 17 weeks in a row, total loans in forbearance continue to drop. Last week the rate dropped to 6.81%, down from the previous week at 6.87%. This means roughly 3.4 million mortgages are in forbearance.

There are many different forbearance plans so it is important for borrowers to talk with their mortgage lender or servicer to learn the options available. Most forbearance plans are 3 or 6 months long with options to extend. Given that we are now 6 months into the pandemic about 70% of loans in forbearance are on extension.

“The significant churn in the labor market now, more than six months into the pandemic, is still causing financial distress for millions of homeowners. As a result, more than 70 percent of loans in forbearance are now in an extension.”  


Of the 6.1 million homeowners who have been in pandemic-related forbearance plans, 41% or 2.4M have since exited, with the vast majority of those borrowers currently making their payments.

Record levels of equity continue to help mitigate foreclosure risk, with only 9% of homeowners in forbearance having less than 10% equity in their homes. Foreclosure filings were down over 80% in August year over year, mostly because of the foreclosure moratoriums. Once those are lifted, we will see the full extent. Ultimately, because of the record levels of equity, I do not see a huge rush of foreclosures.

The extremely low levels of available housing inventory, here and across the country will continue pushing prices higher adding to the equity available to the homeowners, giving struggling borrowers more options. In Greater Phoenix, housing has appreciated 17% in the past 12 months. (Black Knight and MBA)


  • The national non-current (combination of delinquent and in foreclosure) is 7.2%
  • AZ non-current rate is 5.7%. We have the 12th best rate in the country. Idaho has the lowest non-current rate at 3.8% and Mississippi has the highest non-current rate at 11.7%. (Black Knight)
  • 30-day delinquencies dropped in Q2 2020 indicating new delinquencies may have peaked. (Elliot Eisenberg)
  • Through September 22, 88.9% of mortgages were paid, up from 88.6% in August. (Black Knight)

Exiting Forbearance:

In order for a borrower to leave forbearance they have to make 3 consecutive payments and come up with a plan with their servicer or lender on how they will pay back the forborne amount that was deferred while they were in forbearance. One thing that is very important for everyone to know is that forborne payments will be repaid, they are not forgiven.

There are a number of ways a borrower can leave forbearance, not all of them require the owner to sell their property. Some of these options include:

  • Utilizing a 401K in one of two ways.
    • Individuals are allowed to borrow from their 401K with the option of paying themselves back with interest, since it is a loan being paid back – essentially paying yourself back there are no penalties. Talk to your 401K administrator for details.
    • Through provisions of the CARES act an individual can also withdraw an amount of their 401K with no penalties. Again, talk to your 401K administrator for details.
  • Permanent loan modification or refinance, after making 3 payments in a row, to something that allows borrowers to stay. Some scenarios include adding the forborne amount at the end of the loan, some pay a lump sum to get caught up, some offer payment plans to get caught back up.
  • Rentals are in high demand with quickly appreciating values. What about moving out of the property and renting it out to make up the difference in payments.
  • Sell and buy something more affordable, after 3 payments in a row have been made. Pay off the loan and get a new loan with more agreeable terms.
  • Sell, pay off the loan and forborne amount and rent or move in with family.



September’s numbers came out last Friday showing that our economy added 661,000 jobs. This was below expectations. They did revise up the total of new jobs from August though. The unemployment rate is now 7.9% and we have made up 11.5 million of the 22 million jobs lost, which is over 50%. (US Department of Labor)

Elliott Pollack expects a full recovery of all industries in Arizona by the end of 2022. It would be great to be back at full employment in two years.

The AZ Market:

Cromford Market Index (CMI): Is the best leading indicator available (balance is 100, above 100 is a seller’s market, below 100 is a buyer’s market, prices rise at 110, and drop at 90). Yesterday it was 352.6, way above the pre-COVID peak of 241 and over 200 points above the 145.2 we hit on May 15.

Supply: New listings have increased by 11% but they were absorbed as quickly as they arrived so our total inventory remains very low. As of yesterday, our inventory is 63.6% below normal. Active listings excluding UCB  crept up slightly to about 8,300 down over 42% year over year.

Demand: Pending sales are up 25% year over year, huge despite our low inventory and time of year. Our demand is over 28% above normal. Demand rates slowed early in September and picked up speed towards the end of the month and continue into October.

Sales & Prices: In September closing were up 11% year over year. The median sales price is $329,900, up 17% year over year. Healthy appreciation is 3% annually.

Southeast Valley New Listings, Pendings, and Closings:  This week over week comparison for Tempe, Mesa, Chandler, Gilbert, Apache Junction, and Queen Creek since March 15 illustrates our pandemic real estate rollercoaster. You can really see the increase in sales in September!  

- Special Thanks to Sara Perkins of Lawyer's title who originally published this :)