As we head into 2021, an ongoing issue is the disposition of loans in forbearance. The Cares Act allows for borrowers negatively impacted by the Covid-19 pandemic to obtain forbearance up to 1 year[1]. This will begin to expire in Spring 2021, although an extension is possible as the new Administration takes over in January. A key point is that forbearance is not forgiveness. The mortgage agencies have provided options for borrowers who become current after forbearance, so they don’t have to make a lump-sum payment for missed principle and interest.

FHA has designated its policy regarding the disposition of suspended payment amounts as COVID-19 National Emergency Standalone Partial Claims[2](COVID Partial Claim).
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“The COVID Partial Claim puts all suspended mortgage payment amounts owed into a junior lien, which is only repaid when the homeowner sells the home, refinances the mortgage, or the mortgage is otherwise extinguished.”

As we careen towards 2021, it’s getting to be time to look down from the top of the roller coaster towards the abyss below. The view is extremely hazy, but fortunately we have big data tools at our disposal to help clarify things. In mortgage space the single main question is what’s going to happen when forbearance expires. This program was designed to run out after a year, and that will be coming up starting next spring. If you are in forbearance and your time runs out, you have three choices:

1. You can become current
2. You can default and head towards foreclosure
3. You can work with your servicer to adjust your mortgage – a mod

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Like all things related to mortgages, this is far more complicated than it appears. According to the Mortgage Bankers Association, 5.9% of mortgages are in a forbearance program[1]. The NY Fed tells us that outstanding mortgages amount to about $10 trillion.[2] So large numbers are involved.

The main market focus is on the distribution of outcomes when forbearance ends. This depends on a number of factors including the strength of the economy and the effectiveness of public health policy, as well as the financial condition of mortgage lenders and servicers. None of these are easy to predict.