Hoosier Banker 37 the longer a loan is in forbearance, the more likely it is to experience a credit event (short sale, deed-in-lieu, etc.). That tells us we should expect a large number of credit events as forbearance terms expire this spring. There are reasons to believe, however, that loans coming out of forbearance now have a better chance of becoming current than ever before. First, today’s housing market is particularly strong. This helps borrowers stave off credit events, because they can sell their homes and pay off their mortgages in full. This has already led to substantially fewer credit events than we would otherwise expect to see. Second, the new payment deferral options introduced by the government-sponsored enterprises make it possible for borrowers to transition back to current without having to come up with additional cash. These conflicting factors have added to the uncertainty around what will happen when the 12-month terms start to expire. On one side of the equation, the fact that borrowers are spending a longer time in forbearance increases their likelihood of experiencing a credit event upon expiry. On the other side, borrowers arguably have a better opportunity to avoid a credit event today because of the strong housing market and availability of payment deferrals. It is estimated that the share of loans in forbearance that will ultimately experience a credit event could be between 0.7% to 7.2%. That is a wide range, but taking that percentage of the roughly 5% of all mortgages currently in forbearance does not amount to an alarming share of the agency mortgage universe. Further, because these forbearance terms expire on a rolling timeline, the impact should not overwhelm the market. This is not to say there will be no impact – there undoubtedly will be – but it does suggest the disruption is likely insufficient to warrant substantial changes to investors’ strategies. HB Join with peers to make the Indiana banking industry’s voice heard at our nation’s capital. Click on the icon in HB Digital for more information and latest updates, or go to: indiana.bank/calendar IBA Annual Washington Trip Washington, D.C. JULY 1820
RkJQdWJsaXNoZXIy MTg3NDExNQ==