Homeowners keep up with payments despite forbearance increase

Here’s a look at the latest developments in the mortgage market for the week beginning 5/25/20.

• Steady mortgage payments decrease risk for lenders
• Home prices remain stable as summer buying boom approaches
• Good news for the economy could mean higher mortgage rates

Steady mortgage payments decrease risk for lenders

With the recent rise of loans in forbearance now steadily leveling off, it seems that forbearance plans have largely been a precaution rather than a necessity for homeowners.

According to research from mortgage data firm Black Knight, nearly half of all homeowners who opted for forbearance still made their April payments. A Lending Tree survey showed further evidence of this trend, with only 5% of respondents reporting that they would not have been able to stay current without forbearance.

This could be good news for both lenders and borrowers. Though delinquencies are indeed rising, the number of payments overdue by 90 days or more is still lower than last year. If borrowers can continue to keep up with payments, lenders may have the confidence to end the strict credit requirements and sharp rate hikes we’ve seen in response to economic uncertainty, making home loans accessible to a wider variety of applicants.

Home prices remain stable as summer buying boom approaches

As COVID-19 restrictions drove home sales to their lowest numbers since 2011, the demand to buy never disappeared.

Shrinking supply plus steady demand added up to remarkably stable home prices during the crisis, with year-over-year appreciation still at a healthy 5%. This is good news for anyone looking to sell a home as this year’s delayed homebuying season approaches; with new supply hitting the market to meet pent-up demand, signs point to a summer boom.

Good news for the economy could mean higher mortgage rates

After last week’s all-time lows, it appears that interest rates for borrowers are on the upswing again. This is likely the result of growing optimism as lockdowns are lifted nationwide. Typically, positive economic news emboldens investors to sell off safer assets like Mortgage Backed Securities (MBS), and bet on riskier ones like stocks. Lower demand for MBS forces lenders to sell mortgages to investors for less, and lenders raise rates for borrowers to offset those lower returns.

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