When the coronavirus outbreak first erupted, millions of jobs were shed overnight. Realizing that mortgage borrowers would need relief, lawmakers were quick to put a rule into place granting homeowners the right to pause their loan payments for a period of time.
It's a concept known as forbearance, and it existed long before the pandemic began. The difference, however, is that in pre-pandemic times, lenders could routinely deny borrowers forbearance as they chose. This changed under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the massive coronavirus relief bill signed in March of 2020. It entitled any homeowner who attested to a financial hardship during the pandemic to forbearance -- they could not be told no.
Initially, mortgage forbearance was set to expire after 12 months, but in recognition of the ongoing health and economic crisis, lawmakers extended it to 18 months. This means that homeowners who put their loans into forbearance at the very start of the pandemic will need to start making payments again this fall.
Even though that 18-month mark has not yet arrived for those who paused their home loans early on in the pandemic, forbearance exits are still on the rise. In fact, for the week ended July 6, the number of mortgages in forbearance dropped by 189,000 to 1.86 million, according to Black Knight. That's the first time the total number of loans in forbearance has fallen below 2 million since April of 2020, when the provision was first made widely available to those impacted by the pandemic.
A positive economic sign?
Right now, an estimated 3.5% of all active mortgages are in forbearance. And over the past month, the total number of home loans in forbearance has declined by 254,000, representing a 12% reduction.
What's especially encouraging about these numbers is that borrowers who put their mortgages into forbearance in April have not yet run up against their 18-month expiration. As such, it's fair to assume that many of the forbearance exits we've recently seen have been voluntary (rather than the clock running out). And if homeowners are choosing to resume their mortgage payments, it's a sign that they're in good enough financial shape to do so. This means that broadly, the economy may finally be improving.
However, it's not just forbearance numbers that point to an economic recovery. For the past few months, weekly jobless claims have been coming in lower than they were earlier in the year, and they're way lower than the numbers we saw around the time when the CARES Act was signed into law. And while the national jobless rate actually increased slightly in June compared to May, that month also saw an additional 850,000 new jobs get added to the economy, which was more than what analysts were expecting.
The rising costs of goods and services also points to a recovering economy. A big reason inflation rates are so drastic right now is that the demand for goods and services is exceeding the supply available. And high demand indicates that Americans are in a stronger financial position across the board.
All told, the fact that forbearance numbers are declining is a good thing. And there's a good chance they'll continue to do so as Americans, on an individual level, continue to recover from the pandemic's blow.
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