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More than 2.9 million homeowners were in forbearance – or 5.5 percent of all mortgages – as of April 16, according to data from real estate data and analytics firm Black Knight. That amounts to about $651 billion in unpaid principal.
More than 1.3 million homeowners with Fannie & Freddie loans and another 922,000 people with FHA and VA loans were in forbearance.
Forbearance is when a lender allows a mortgage holder to pause, or temporarily reduce, payments with the expectation that everything is repaid in full over time.
The surge is not surprising. Part of the multitrillion-dollar stimulus package passed by lawmakers called for lenders, including Fannie and Freddie, to allow people to put their payments on hold if they are experiencing coronavirus-related financial difficulties.
There are concerns, however, that a massive jump in forbearance requests could strain the industry, putting cash flow constraints on servicers.
And it could also put pressure on individuals down the line.
“It is important for the consumer to discuss with their bank what the repayment program will look like so they can make an informed decision,” Garrett Derderian, managing director of market analysis at CORE, told FOX Business.
Derderian noted that repayment could take the form of a lump sum in some cases, which may be challenging for people.
The upside of the forbearance policy is that it could position the market for a quicker rebound once the economic situation normalizes.
“Less foreclosures assure stable home prices and a much better position for the economy to return back to normal after the pandemic,” Lawrence Yun, chief economist and senior vice president at the National Association of Realtors, told FOX Business
However, those who can continue making regular payments should do so, advised Yun.
“The missed payments are not forgiveness but are tacked on at the other side of the life of the loan,” Yun said. “Or if needing to sell a home in the near future, then there is less equity by the amount of the missed payments. So it is an honor system but also honorable to keep paying if not impacted from the pandemic.”