Over the course of 2020 and into early 2021, the mortgage market has seen significant changes driven by the COVID pandemic. Novel programs, ranging from foreclosure moratoriums to payment deferrals and forbearance of those payments, have changed the near-term landscape of the market.
In the past three months, Fannie Mae and Freddie Mac have released several new loan-level credit statistics to address these novel developments. Some of these new fields are directly related to forbearance granted during the pandemic, while others address credit performance more broadly.
We summarize these new fields in the table below. These fields are all available in the Edge Platform for users to query on.
The data on delinquencies and forbearance plans covers March 2021 only, which we summarize below, first by cohort and then by major servicer. Edge users can generate other cuts using these new filters or by running the “Expanded Output” for the March 2021 factor date.
In the first table, we show loan-level delinquency for each “Assistance Plan.” Approximately 3.5% of the outstanding GSE universe is in some kind of Assistance Plan.
In the following table, we summarize delinquency by coupon and vintage for 30yr TBA-eligible pools. Similar to delinquencies in GNMA, recent-vintage 3.5% and 4.5% carry the largest delinquency load.
Many of the loans that are 90-day and 120+-day delinquent also carry a payment forbearance. Edge users can simultaneously filter for 90+-day delinquency and forbearance status to quantify the amount of seriously delinquent loans that also carry a forbearance versus loans with no workout plan.[2] Finally, we summarize delinquencies by servicer. Notably, Lakeview and Wells leads major servicers with 3.5% and 3.3% of their loans 120+-day delinquent, respectively. Similar to the cohort analysis above, many of these seriously delinquent loans are also in forbearance. A summary is available on request.
In addition to delinquency, the Enterprises provide other novel performance data, including a loan’s total payment deferral amount. The GSEs started providing this data in December, and we now have sufficient data to start to observing prepayment behavior for different levels of deferral amounts. Not surprisingly, loans with a payment deferral prepay more slowly than loans with no deferral, after controlling for age, loan balance, LTV, and FICO. When fully in the money, loans with a deferral paid 10-13 CPR slower than comparable loans.
Next, we separate loans by the amount of payment deferral they have. After grouping loans by their percentage deferral amount, we observe that deferral amount produces a non-linear response to prepayment behavior, holding other borrower attributes constant.
Loans with deferral amounts less than 2% of their UPB showed almost no prepayment protection when deep in-the-money.[3] Loans between 2% and 4% deferral offered 10-15 CPR protection, and loans with 4-6% of UPB in deferral offered a 40 CPR slowdown.
Note that as deferral amount increases, the data points with lower refi incentive disappear. Since deferral data has existed for only the past few months, when 30yr primary rates were in a tight range near 2.75%, that implies that higher-deferral loans also have higher note rates. In this analysis, we filtered for loans that were no older than 48 months, meaning that loans with the biggest slowdown were typically 2017-2018 vintage 3.5s through 4.5s.
Many of the loans with P&I deferral are also in a forbearance plan. Once in forbearance, these large deferrals may act to limit refinancings, as interest does not accrue on the forborne amount. Refinancing would require this amount to be repaid and rolled into the new loan amount, thus increasing the amount on which the borrower is incurring interest charges. A significantly lower interest rate may make refinancing advantageous to the borrower anyway, but the extra interest on the previously forborne amount will be a drag on the refi savings.
Deferral and forbearance rates vary widely from servicer to servicer. For example, about a third of seriously delinquent loans serviced by New Residential and Matrix had no forbearance plan, whereas more than 95% of such loans serviced by Quicken loans were in a forbearance plan. This matters because loans without a forbearance plan may ultimately be more subject to repurchase and modification, leading to a rise in involuntary prepayments on this subset of loans.
As the economy recovers and borrowers increasingly resolve deferred payments, tracking behavior due to forbearance and other workout programs will help investors better estimate prepayment risk, both due to slower prepays as well as possible future upticks in buyouts of delinquent loans.
Contact us if you are interested in seeing variations on this theme. Using Edge, we can examine any loan characteristic and generate a S-curve, aging curve, or time series.
[1] A link to the Deferral Amount announcement can be found here, and a link to the Forbearance and Delinquency announcement can be found here. Freddie Mac offers a helpful FAQ here on the programs.
[2] Contact RiskSpan for details on how to run this query.
[3] For context, a payment deferral of 2% represents roughly 5 months of missed P&I payments on a 3% 30yr mortgage.
